CHANGES WITH WHEDA--MORE COMPETITIVE INTEREST RATES!
Thanks to a change in our underlying cost of funds, WHEDA effective immediately is substantially reducing the interest rates on its WHEDA Fannie Mae Advantage suite of first mortgage products. The new rates are as follows:
WHEDA Fannie Mae Advantage 4.95%
WHEDA Fannie Mae Advantage - Price Point 4.40%
WHEDA Fannie Mae Advantage - MI Choice 4.60%
WHEDA Fannie Mae Advantage - Low LTV 4.60%
WHEDA will reduce the interest rates accordingly on all loans that are currently locked but have not yet funded. Lenders will receive a revised Confirmation of Rate Lock. Rates are subject to change daily, so lenders should visit www.wheda.com periodically for the most up-to-date interest rates.
WHEDA issues mortgage revenue bonds (MRBs) to raise proceeds to fund its mortgage loans. Changes announced yesterday to the New Issue Bond Program (NIBP) by the U.S. Department of Treasury will effectively reduce the interest rate on MRBs WHEDA will issue through December 31, 2011, making this one-time decrease in interest rates possible. Under NIBP, the Treasury, through Fannie Mae and Freddie Mac, is investing in a portion of MRBs issued by state housing finance agencies (HFAs) in an attempt to lower borrowing costs for low-to-moderate income first-time home buyers as a means of increasing affordable housing lending activity nationwide.
True Cost of Lower Monthly Payments
Recently HUD announced their intention to change their insurance premiums, in order to raise HUD’s own reserves to cover anticipated losses and fund their operations. Let’s look at the impact on today’s home buyer, resulting from the changes which will go into effect on September 7th.
The “spin” is that they are trying to reduce the closing costs to buy a home by lowering the Up Front Mortgage Insurance Premium (UFMIP) from 2.25% to 1.00%. On a $300,000 loan, the borrower will save 1.25% on $300,000 or $3750- a significant number no doubt. BUT, that amount can be financed into the mortgage; therefore, at 5%, the borrower’s monthly payment will only be reduced about $20 a month. Yes, $20 a month for 360 payments would be a big deal, but since most people are more concerned with their monthly payment than loan amount, let’s look at the other change to the insurance premiums…
The Monthly Mortgage Insurance Premium is being hiked from .55% to .85% – .90% (depending on if the loan-to-value of the mortgage is below or above 95%). This increase of 30-35 basis points is tantamount to an interest rate increase because that is how it is calculated. This move just made it harder to qualify for a mortgage because lenders use the ratio of your monthly payment as compared to your monthly income as a factor to determine eligibility. Here’s an example:
So, come September 7th, the same loan will cost $67.50 more every month. Higher mortgage payment equals less people who qualify to buy a given home. The result will be LOWER HOME PRICES! In order for the same house to wind up with the same monthly mortgage payments, the price of the home will need to be lowered 4-5%!
The result of HUD’s new move is two-fold:
- More expensive homeownership monthly OR a further reduction in selling prices
- Less money to HUD in the short run (because of the lower UFMIP) and more for them in the long run (because the MMIP increase will accumulate over time and because loans closed today will likely not be paid off for a longer period of time as a result of the FHA assumability).
What Does This Mean to You?
If you are buying a home, buy before the monthly carrying cost goes up! If you’re selling, get it in contract before you have to lower the price even further for no reason except for the cost of your buyer’s mortgage!
--Dean Hartman, Chief Planning Officer at Contenental Home Loans, NY
FHA Policy Changes
The Federal Housing Administration has made sweeping changes that affect buyers using FHA funding to purchase homes. Here is an outline of what these changes involve:
1. Increase the mortgage insurance premiums (MIP) to build up capital reserves and bring back private lending.
2. Update the combination of credit scores and down payments for new borrowers.
o New borrowers will now be required to have a minimum credit score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 credit score will be required to put down at least 10%.
o This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
o This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
3. Reduce allowable seller concessions from 6% to 3%.
o The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
4. Increase FHA lender enforcement.
o Publicly report lender performance rankings to complement currently available Neighborhood Watch data which will be accessible via www.hud.gov on February 1.
§ This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
o Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
§ Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
o Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process.
§ Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
o HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
§ Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.
§ Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative.
Note: This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches.