Late last week the House of Representatives passed H.R. 5072, the so-called FHA Reform Bill. One of the major components of that bill (you can read the text of the bill here), raises the monthly insurance premium for all FHA buyers. What does that mean to your bottom line?
Currently, the FHA monthly premium is .55% and the new legislation Congress is looking at will raise the premium a wopping 272% to 1.5%. What does this mean to your buyer? If they are at the limit of their eligibility on a $300,000 purchase price now, they would have to lower their interest rate by over 1.25% to still qualify for that house. In other words, if the current market rate is 5.00%, it would have to drop to 3.75%! If you think you might have trouble locating a lender who will do 30 year fixed loans at 3.75%, don’t worry; you can also lower their purchase price to bring them back into eligibility. Their new price would only have to drop 10%! A buyer looking at $300,000 today will be looking at $265,000 to $270.000 as soon as this bill passes. Does that change your market opportunities for the better… or the worse?
I understand why the NAR supports this, it keeps FHA alive and well, doing sub-prime loans for people who can’t afford to buy a home, which in turn keeps dues paying agents busy and coughing up their fair share. But why do agents support it? It’s going to have a devestating affect on your clients, and therefore on you. Do you support it? Have you let anybody know?
Brian Brady says:
“It’s going to have a devastating affect on your clients, and therefore on you.”
Only on listing agents. Buyers agents will most likely enjoy lower prices as a result of this measure.
What we’re learning from this measure is that Government really has no idea how to (nor business in trying to) “manage markets”. One agency works hard to prop prices up while the other (through sheer survival instinct) enacts policy that will reduce prices.
FHA has a stoopid high market share. That fact alone should be telling to agents about the future of prices
June 14, 2010 — 9:12 pm
Sean Purcell says:
I understand your conclusion, but I’m not sure if I agree. Right now FHA loans guarantee roughly one-third of all new loans originated. Fannie and Freddie account for over 60% and roughly 5% are not government guaranteed. (The government backs 95% of all new mortgages? Now that’s a scary statement!)
During the course of debate on this legislation, some were pushing hard to raise the FHA down pymt to 5% from its current 3.5% – the NAR and various Builder’s Associations as well as the Mortgage Banking associations were all against this, go figure. It was estimated by FHA that raising the down pymt to a “Fannie/Freddie level,” would remove 300,000 buyers from the marketplace.
That tells me that of the 6 million homes sold per year in the US, 95% are guaranteed by the government. Of those, one-third use FHA. But based on FHA’s estimate above, if they became more like Fannie/Freddie, the effect would change only 5% of the buyers.
This suggests that Fannie/Freddie are still the big dogs and FHA making its borrowers less affordable will serve to hurt them more than the listings market
June 15, 2010 — 8:52 am
Tim Shepard says:
This is how it works:
Buyers : Zero Sum Game(if lucky) : Pay more to gov but, in theory, homes sell for less. Reality, they just get less house for same money.
Sellers : Loser : Fewer qualified buyers in a market that is lacking buyers to start with.
Federal Goverment -Winner Winner chicken dinner! More money collected at expense of sellers and buyers.
This may benefit buyers (those that shouldn’t be buying to start with) but qualified buyers are being penalized.
June 15, 2010 — 7:15 pm