Unfortunately, Cardin is not in the mortgage business, nor is he knowledgeable about how FHA loans work. Ever wonder why FHA base rates are lower (before adjustments) than conventional loans? The one month of interest added to the payoff. If you get rid of the full month of interest, FHA rates will go up. If he wants to change the rules, then so be it. VA mortgages are higher because they charge interest per diem on the payoff. Expect a .25 to .5 higher in interest rate minimum if this goes through. Good job Mr. Cardin.

Jamie,

You are correct. My client got under contract Monday and is going FHA, and our lender "started" the app process a little early to make sure she got a case number before Monday, locking her into the current rules.

Thanks for the feedback, guys!

Will Realtor Greg Northerp tell us this is good news for the housing market? It seems to me that this will further erode prices by at least the amount of the increase in fees. Why are the banks/govt trying to penalize first time buyers? shouldn't they be trying get extra money from those selling homes for big profits over a certain threshold?

amazing. it seems like everything possible is going against housing prices rising this year. interest rates already a percent above just 6 months ago, higher closing fees, tougher credit requirements, huge shadow inventory of foreclosed homes... and now higher FHA insurance fees. i realize FHA only applies to relatively less expensive houses, but let's say you're a home seller looking to sell your starter house and upgrade to a larger, nicer place. this affects your buyer... which affects what you can get for the house, once they see the monthly payments. in turn, that affects what you can spend on your next house, which reverberates throughout the system.

right now, it's a wild ride out there for sellers (reduced prices) and buyers (tougher to get a loan)

Chappy,

FHA is not just for less expensive houses. It's used a lot by first time buyers for sure, but we bought our "final" house and used an FHA loan because we didn't have 20% to put down.

The current limit on an FHA loan (for a single family home) is $560k. So, it can be a possible financing vehicle for a first time buyer or a move up buyer depending on the situation.

You are definitely right about the "wild ride." The upfront premium went from 2.25% down to 1% of the loan amount, and then they basically doubled the monthly premium. And that was just last year.

Some would argue the "harder to get a loan" is a good thing. As opposed to the "no doc" loans of the mid-2000s where you could just write "I make $100k" on a cocktail napkin and that counted as proof of income.

John, I actually agree with you. And I have no problem with stagnant or falling home prices, even though I just bought a personal home (also have a rental). I say this because high housing prices were actually bad for the economy as a whole, creating a lot of distortion and bad incentives. I also think making it tougher to get loans is good, because in the long run that will create a more stable housing sector.

I didn't realize FHA went up to 550k. To me, that seems kind of problematic. I'm not speaking about you, but in the abstract, why should the government be subsidizing anyone to buy a house worth more than, say, 300k? Outside of the most expensive areas of major cities, there's no reason you can't find a good family house for 300k or less. And to the extent there is any difficulty at that price point, it's because FHA is making the money available. When you know you can borrow the money at favorable terms (30 yrs, low interest rate) you're going to spend differently than if you have to save up the 20%. To me, giving someone a gov't subsidized/backed loan at the 500k+ price point is simply crazy.

Chappy,

I can't say I totally disagree with you. I think if you required everyone to have 20% to put down, the market would come to a more screeching halt than it has already. I think the generally more stringent loan requirements help, although I have seen a few lenders email me to promote "lower credit scores for FHA, which concerns me.

I understand how you/others can be concerned about the "govt subsidized/backed" loans idea. FHA has always been, at least in my eyes, an insurance policy. As a buyer, I pay an upfront premium (right now 1% but it was 2.25% not too long ago... so for a $500k house that was $11k upfront!) and then a monthly insurance premium to cover the risk. Admittedly, it's the government covering that risk, and you can argue if they should be in that business, but at least the buyer has some skin in the game, and if the loan is vetted as it should be it can be a win-win. When we bought our place in 2007, we had to document everything and several times had to present statements and such to explain our finances. It was annoying then, but looking back and having my agent experience now, as well as seeing all the REOs out there, it was a good thing.

It may be anecdotal, and that's fine it someone takes it that way, but my FHA buyers (and conventional) have been thoroughly vetted by the lenders. Lots of documentation and backup paperwork needed for my deals by the underwriter over the last two years or so.

John,

I guess my larger point is the government is too apt to respond in distorted ways to an area like real estate. On one hand, Fannie and Freddie just required massive amounts of *public* money in the form of bail outs. However, already the federal government has wasted all sorts of money delaying the drop in prices that is bound to happen over time. Those new homebuyer incentives did nothing except prop up prices for an extra 6-9 months. After they went away, demand fell to rock bottom.

When the government responds to lobbying and big-money interests (like banks and financial institutions) there is a lot to be worried about. FHA insurance isn't bad by itself, but when you include that in the overall picture of government throwing money towards a slew of programs to "encourage home ownership", its problematic.

At some point, buyers should be putting down bigger payments. Also, banks should have to keep some of the risk on their own books. And, lastly, banks shouldn't loan more money that a property is realistically worth--so that if they have to foreclose, they really don't NEED the insurance, because the house they'll get back is actually worth what someone paid for it. True value, not inflated prices due to bubbles fueled by government money.