Article By: Jim Porter – December 30, 2022
The president of the National Association of Realtors applauded HUD in November for now allowing homeowners with FHA mortgages to obtain private flood insurance, which can be much cheaper than the National Flood Insurance Program.
The mission of the Department of Housing and Urban Development is to create strong, sustainable, inclusive communities and quality affordable homes for all.
This recent decision on flood insurance is a step in the right direction, but gee whiz, they are still making things terrible for home buyers that cannot qualify for a conventional mortgage and need an FHA loan. FHA mortgage insurance, in some cases, is triple the cost of private mortgage insurance for buyers with 3.5% to 5% down.
The FHA mortgage insurance fund’s capital reserve ratio is more than five times the statutory minimum reserve ratio and is well positioned to withstand an economic slowdown. FHA is hurting the people targeted in their mission statement.
As far as I am concerned, HUD is ripping off the middle-class buyers that need an FHA loan.
As an FHA lender, we must charge an upfront nonrefundable mortgage insurance premium of 1.75% of the loan amount and then charge .85% annually for the life of the loan when the buyer has a 3.5% down payment regardless of FICO score. Every private mortgage insurance in the country has moved to risk-based PMI pricing based on FICO score.
HUD needs to modernize its risk management program and update the mortgage insurance program and stop referring to the Great Recession as a reason for overcharging their target audience.
A 700 FICO score buyer that can qualify for a conventional loan with 3% down can get private mortgage insurance at a cost of .84% annually with a zero up front premium and, unlike FHA, can get rid of the .84% PMI cost in three to eight years. This scenario is with a smaller down payment and dramatically less in mortgage insurance cost.
Call your local representative in Congress or the Senate and get this price gouging corrected ASAP and get them back to the mission.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
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