BY ALLYN S. MEDEIROS Contributing columnist
Guess what happens when an insurance fund has to pay out on losses??? They increase your rates! That is exactly what is happening for borrowers who are attempting to purchase homes and/ or refinance existing FHA (Federal Housing Administration) loans after April 1. Time is of the essence.
Statistically, one in four homes financed in Kern County over the last 48 months has been a FHA loan. Nationwide, we have seen a larger than expected default rate on these FHA insured loans and as a result the Mutual Mortgage Insurance Fund (reserve fund) has dropped below required levels. Due to this fact, it is very important for those who have been contemplating refinancing their FHA loan to take action before April 1. If you are in a contract to purchase a property and are able to do so, it is strongly recommended to pull a FHA case number before this date as well. Here is the reason why.
Per the Mortgagee Letter 2013-04 (www.hud.gov), Annual Mortgage Insurance premiums will be increasing approximately 10 basis points or .10 percent per month. To add insult to injury, the mortgage insurance premium will never go away! For financing higher than 90 percent, the monthly mortgage insurance premium will stay in effect until the 30- or 15-year loan is paid in full. Per $100,000 financed, this could be an additional amount of $25,432 more paid for the same loan! If you are financing less than 90 percent loan to value, your mortgage insurance will be required for 132 months or 11 years. This is a major change for FHA and can impact your financial decisions.
There are a few key items to consider when taking action on FHA loans. First, if you can save at least 1 percent over your current mortgage rate with mortgage insurance, then it may make sense to refinance. Currently, if you are completing a FHA to FHA refinance with the same term (30 year to 30 years) then you may qualify for a "Streamline FHA Refinance," which does not require an appraisal.
However, shortening the term of your existing loan may be an option if you are willing to have the home appraised. Second, if your loan is one that was endorsed before May 31, 2009, you may be eligible for a very low mortgage insurance premium and still take advantage of historically low rates. Current market conditions can be best described as unbelievable! Sometimes I can't believe how low the rates are and I can't believe how volatile the mortgage-backed securities market has been over the last quarter. This last one keeps me up at night.
As a general rule of thumb, the only way to see if you have hit the bottom of the market is to look back down the hill as you travel back up. A simple way to monitor long-term mortgage interest rates (15 years or longer) is to watch the Dow Jones Industrial Average and the Standard and Poor's 500. Mortgage Backed Securities are historically on an inverse relationship to the stock market. When stocks do well (like they have been trending with consecutive record-breaking days since second quarter 2007, mortgage rates suffer.
It is important to note that the financial markets do not have an infinite number of dollars invested. So, generally speaking, if the stock market shows a correction, then money flows back into safe haven bonds. This movement of money benefits the market for home loan interest rates. Although we have been told that the Feds will continue to print money and invest in MBS as part of the qualitative easing program, it is still wise to consider locking in low mortgage rates now. Take action!
-- Allyn S. Medeiros is a licensed mortgage professional at Agape Mortgage in Bakersfield. NMLS # 214606. Contact him at 496-9311 or email@example.com. These are his opinions, not necessarily those of The Californian.