Realtors to FHA: Your Mortgage Insurance Rates Drive Buyers Away
The Federal Housing Administration’s (FHA) mortgage insurance requirement is facing criticism from real estate professionals who argue that home purchases are becoming increasingly out of reach for many qualified borrowers who rely on FHA financing but are hindered by mortgage insurance rules. Steve Brown, president of the NATIONAL ASSOCIATION OF REALTORS® (NAR), called on the FHA to relax its mortgage insurance rules due to concerns about high annual mortgage insurance premiums and mortgage insurance required for the life of a loan.
Making sense of the story:
• NAR posits as many as 125,000 to 375,000 prospective buyers were priced out of the market in 2013 by the FHA’s high insurance premiums and mortgage insurance requirement.
• In 2014, FHA fees make up nearly 25 percent of a monthly mortgage payment.
• On a $150,000 loan, at 4.5 percent, the mortgage payment is 13 percent higher today than it was in 2008.
• In 2014, the mortgage insurance premium of 1.35 percent is 80 basis points higher than the rate of 0.55 percent in 2010. The 80 additional basis points pushed an estimated 1.45 million to 1.65 million renters over a sustainable debt-to-income level for the purchase of a home in 2013.
• Many first-time home buyers, who are priced out of FHA and unable to migrate to private mortgage insurance, are likely under the age of 44. Since 2008, income growth has been slowest among Millennials, ages 33 and younger, and Generation Xers, ages 34-44.
• Many of the potential home buyers who are priced out of FHA cannot migrate to private mortgage insurance. Combined with the higher funding cost of roughly 25 basis points for a GSE execution, only borrowers with the highest credit could afford to migrate to GSE financing.