Recently the FHA announced a change in the costs associated with mortgage financing, citing a need to increase the cost for mortgage insurance to counter the steady decrease in housing values.  At the same time, the Obama administration is unveiling a new plan that will allow some borrowers with existing federally insured mortgages to refinance into a lower interest rate loan.

At a press conference on Tuesday March 6th 2012, the administration (President Obama) announced that the FHA will cut its upfront fees for refinanced loans that it already insures.

Under the previous announcement from the FHA, the changes slated for April 1^st of this year will place a hike on up-front insurance premiums that it charges first-time borrowers or those applying for a new mortgage.  The hike is a jump to 1.75% of the base loan (up from 1%).

The new plan announced by the Obama administration with adjusted fees is intended for borrowers who have FHA loans originating before June 1, 2009.  Currently the FHA backs about 5.4 million 30 year fixed-rate mortgages.  About two-thirds (or approximately 3 million) of those mortgages originated after June 1 of 2009 and won’t be eligible.  That means over two million borrowers could still potentially take advantage of the savings.  For the average home owner with an FHA backed mortgage, these savings equate to about $1000.00 per year.

The other stipulation is that in order to refinance, and take advantage of the newly reduced fees, borrowers must be current and have made all of their last 12 payments.

Upcoming Changes for FHA Mortgage Refinancing

It’s already a great time to consider refinancing for a mortgage in Michigan because interest rates on 30-year loans have been hovering around 4% since December of 2011 – the lowest on record.  While this would normally move people toward refinancing, higher FHA premiums offset the savings of low interest rates and kept many borrowers from taking advantage of the low rates.  This new reduction will bring up-front premiums on mortgage refinancing of FHA backed loans to .01% – down from 1% – of the loan balance.  The FHA will also drop annual premiums to 0.55% from 1.15% of the loan balance.

This is a sharp contrast to the hike the FHA put in place on new loans to improve their capital reserves.

According to Jaret Seiberg, an analyst with the Washington Research Group, “Lowering the refinancing fees associated with an FHA loan should be broadly positive for housing and the economy by reducing foreclosures and freeing up income for consumers to spend on other goods and services,”

Gaining the Benefits with a Mortgage in Michigan

For home buyers, it’s been difficult to gain a loan and get refinanced for an FHA loan through traditional banks and lending institutions because of the credit crunch and the down housing market in recent years.  Some lenders simply don’t want to refinance FHA loans because many of those loans originated during recent years when default rates of jumped dramatically.

This new policy from the Obama administration is intended to make it easier for banks to refinance those loans, because it directs the FHA not to count the loans toward the lenders “compare ratio” – that calculates the performance of loans issued by lenders and compares it to the performance of other lenders, according to Seiberg.

Essentially, if defaults climb on refinanced mortgages, banks and lenders of mortgages in Michigan don’t have to sweat the FHA holding it against them.  That means banks may finally ease up on refinancing a mortgage in Michigan for borrowers that are considered a higher credit risk.  According to Jay Brinkmann, chief economist for the Mortgage Bankers Association, “Banks have not been accepting credit scores below a certain point.  Now, they may.”

The goal is to move money into the economy.  “It’s like another tax cut in people’s pockets,” said President Obama.  By reducing the cost of a mortgage, consumers will be able to spend more on other goods.