New FHA rule on mortgage insurance will spur refinancing

George Lopez |

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FHA Streamline Refinances Become Particularly Appealing

Seeking to build momentum heading into his State of the Union address, President Obama announced yesterday that FHA will reduce the annual mortgage insurance premiums (MIP) that new borrowers pay on FHA loans by half a percent. Designed to bolster the nation’s housing market, the new FHA rule is intended to give first-time homebuyers an additional incentive to enter the housing market. However, many experts believe the new FHA rule will spur an even bigger wave of refinancing, as existing FHA borrowers rush to take advantage of record low interest rates and lower their mortgage insurance premiums at the same time.

Many mortgage professionals believe the easiest way for FHA borrowers to take advantage of lower interest rates is through the FHA Streamline Refinance Program. FHA introduced the program in the 1980s, believing that borrowers who had qualified for a mortgage at a high interest rate were much better able to make their payments at a lower interest rate, and did not need to go through the same time-consuming, expensive process again if they wanted refinance. The program featured reduced qualifying requirements, low closing costs (or, in the case of James B. Nutter & Company, no closing costs), and no credit requirements. The program became a hit with homeowners, and FHA streamline refinances became extremely popular.

However, just like Fannie Mae and Freddie Mac, FHA was forced to raise revenue in the wake of the housing crisis. In the case of FHA, chose to ratchet up their annual mortgage insurance premium rates and in April 2013, FHA raised their annual mortgage insurance premiums to 1.35% per loan, or $225.00 per month for a $200,000 loan.

FHA’s higher mortgage insurance premiums were a financial boon for FHA’s finances, but the higher premiums limited the number of homeowners who could take advantage of record low interest rates and refinance. However, yesterday’s news significantly changes that equation as many FHA homeowners who are already paying the higher insurance premium can refinance and get a financial “two-fer”—a lower mortgage insurance premium and a lower interest rate at the same time.

Needless to say, depending on your situation the monthly payment savings from a FHA Streamline Refinance can be quite significant. If you already have an FHA loan, you owe it to yourself to get all the details. The new FHA rule is set to be implemented on January 26, 2015 and even allows those borrowers who have already applied for their FHA Streamline Refinance to be eligible for the reduced insurance premium, depending on when they applied.

President Obama’s decision to lower FHA mortgage insurance rates could be a huge boost to the nation’s housing market. Perhaps HUD Secretary Julian Castro summed it up best when he said, “This action will make home ownership more affordable for over two million Americans in the next three years.” We believe that number could be much higher if existing FHA homeowners who seek out an FHA Streamline Refinance are included. Don’t miss out!

Contact: George B. Lopez, Executive Vice President, James B. Nutter & Company, NMLS #2067, 4153 Broadway, Kansas City, MO 64111, glopez@jbnutter.com , (800) 217-7334


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