Refinancing Fees Are Reduced for Some F.H.A. Borrowers
By TARA SIEGEL BERNARD
In what it described as part of an initiative to lift the housing market, the Obama administration said Tuesday that it would make refinancing less expensive for certain borrowers with mortgages backed by the Federal Housing Administration.
“It’s like another tax cut that will put more money into people’s pockets,” President Obama said at a news conference announcing the plans, adding that he does not need authorization from Congress to make the changes.
The F.H.A. does not make loans, but insures mortgages that meet its guidelines: people with credit scores of 580 or more can put down as little as 3.5 percent. After the housing market collapsed in 2007, the number of mortgages backed by the F.H.A. surged, accounting for 40 percent of all new-purchase mortgages in 2010, up from 4.5 percent in 2005, agency figures show.
The fee reductions will apply only to borrowers seeking to refinance through the agency’s “streamline” program, which is typically less burdensome than a traditional refinancing. There are a few requirements, though the biggest drawback is that only borrowers with loans that were originated on or before May 31, 2009, are eligible. That excludes a lot of borrowers, though the White House estimated that two million to three million mortgage holders would qualify.
In addition, borrowers must have an existing F.H.A. loan that they are seeking to refinance into another F.H.A. loan. They must also be current on their payments, and no more than $500 can be taken as cash out of the loan. But the refinancing does not require any income verification or an appraisal, which means that borrowers who owe more on their mortgage than their house is worth are also eligible.
“This is one way that F.H.A. can make a real difference to help homeowners who are doing the right thing, paying their bills on time and want to take advantage of today’s low interest rates,” said Carol J. Galante, the housing administration’s acting commissioner. “By significantly reducing costs for these borrowers, we can make certain they cut their monthly mortgage burden, which will benefit the housing market and the broader economy in the process.”
The F.H.A. charges two types of fees to borrowers, and they have risen in recent years. That has prevented many borrowers from refinancing into loans with some of the lowest interest rates on record, mortgage brokers said.
Now, under the new initiative, the fee known as the upfront mortgage insurance premium will drop to a mere 0.01 percent of the loan balance from 1 percent. Meanwhile, the annual mortgage insurance premium will be cut by about half — to 0.55 percent of the loan balance from 1.15 percent. Taken together, the administration said, the fee reductions could save the typical F.H.A. borrower about $1,000 a year. That does not include any savings from a lower interest rate.
The changes follow a series of fee increases that the F.H.A. announced last month that are meant to strengthen the agency’s reserves. The higher fees will apply to borrowers taking out new mortgages and people seeking to refinance loans that originated after May 2009.
Moreover, President Obama also announced plans to provide relief for service members and veterans, including those who were wrongfully foreclosed upon or denied a lower interest rate on their mortgage.