A new day…new changes:
The Obama Administration has sent its FY 2013 budget to the Congress. It includes two increases in the annual mortgage premium and raises the prospects for additional premium increases if that becomes necessary (i.e. because of an increase in seriously delinquent loans).
The increases are:
10 basis point increase in annual premium for single family forward mortgages (1.25% annual premium)
25 basis point additional increase for loans above $625,500 (1.5% annual premium)
When will these increases be implemented?
The Budget indicates these changes will be implemented “soon”. When the 25 basis point increase in the annual premium was implemented last year (from 90 bps to 115 bps), the Mortgagee Letter (2011-10) was published on February 14, 2011 with an effective date for case numbers assigned on or after April 18th, 2011. Accordingly, based on last year’s experience we expect the new mortgagee letter to be published in the near future (possibly today) with an effective date in mid-April.
What are the prospects for further increases?
FHA has indicated that further increases are possible to ensure the solvency of the fund. While we hope that will not be necessary to raise premiums beyond the levels noted above, rising defaults are an ongoing problem.
As we noted in a recent update, FHA’s seriously delinquent loans have increased significantly in the last six months (from 584,822 loans in June 2011 to over 711,000 loans in December 2011). However, only 47,180 loans originated in the last two years (2010 & 2011) are seriously delinquent (6.5% of FHA’s total seriously delinquent loans). Accordingly, FHA’s delinquency problems are concentrated in older, more seasoned loans. These loans include seller funded down payment assistance loans and loans with lower credit scores.
Hopefully, FHA will heed the advice of the New York Federal Reserve Bank William Dudley who in a recent speech said:
“But the guarantee fees (referring to the GSEs) for new purchase mortgages should be based on the expected losses on these mortgages – not the realized losses on loans of earlier vintages.”
Premiums for streamline refinances
Many of you have commented on the impact of premium increases on refinances particularly in light of the Administration’s new refinance initiative. We believe FHA is looking at possibly reducing the annual premiums for streamline refinance loans.