The administration has released a white paper saying it intends to wind down Fannie Mae and Freddie Mac and severely cut back FHA’s role in mortgage funding. Though the plan could take up to seven years to execute, it would mean a dramatically privatized mortgage market and very likely higher rates. The report offers three options, including creating a new government agency that would continue to insure mortgages or a new agency that would step in only during times of crisis. The most drastic option would end government backing for home loans beyond the FHA. This could prove to be disastrous for condo financing, which has long been problematic when it comes to FHA. (Read more about how changes in condo financing impacted sales in this post.)
This report comes on the heels of another direct hit on buyers: FHA’s recently announced increase in the monthly mortgage insurance premium of .25% beginning with case numbers assigned on or after April 18, 2011. FHA Commissioner David Stevens said “After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” said Stevens. “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.” This means that FHA buyers who have a ratified contract AFTER that date will have a higher monthly payment, so plan accordingly and get those offers in during EARLY April! On a $400,000 loan it translates into an extra $83 in your monthly payment.
Interest rates have a huge impact on affordability, especially for first time buyers who typically have lower down payments than 2nd or 3rd time buyers who are rolling equity over from a previous home.