Higher FHA premiums on the horizon

The Mortgage Banker’s Association is reporting that the FHA Reform Act of 2010 passed the US House of Representatives.  This bill was drawn up in response to many of the solvency issues that the FHA began encountering late last year (see HERE).  One of the most aggressive provisions of the bill is that it will allow the FHA to charge up to 1.55% in annual mortgage insurance premiums.  This is up from the current maximum of .55%.  How does this translate into dollars?

Currently, for a homebuyer that buys a home for $250,000 and puts the minimum 3.5% down that is required by FHA financing their monthly mortgage insurance premiums are $110.57.  Their total principal, interest,  property taxes, homeowner’s insurance, and mortgage insurance (PITI) is about $1,737.

With the proposed mortgage insurance the same homebuyer would have monthly mortgage insurance premiums of $311.61 (181% increase).  Their projected PITI payment would be $1,938 (11.6% increase).

The bill has yet to become law but I suspect that it will.  It’s unclear at this point how quickly the new provisions would be put in place.  I’m curious to know how happy the private mortgage insurers are about this.  The increase of mortgage insurance premiums should generate a lot more business for them.