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The FHA socks it to the consumer

The Federal Housing Authority is raising its mortgage insurance premiums again!

Once dedicated to helping families buy homes without the traditional down payment of 20 percent, the FHA has more than doubled its monthly fees, effectively pricing many potential homebuyers out of the market.

Lenders typically only want to give loans for 80 percent of the value of the property. The FHA allows borrowers to put down as little as 3.5 percent, with the FHA agreeing to cover the difference should the borrower default. In exchange for this protection, the borrow purchases mortgage insurance that spreads the risk of default among all the borrowers.

The FHA now charges an upfront mortgage insurance fee of 1.75 percent of the loan amount, with 1.25 percent of the loan amount being paid monthly. Back in 2008, the FHA’s upfront amount was higher, at 2.25 percent, but the monthly amount was just .55 percent, and only applied for five years.

To add insult to injury, in June, the FHA will apply the monthly fee throughout the life of a 30-year fixed-rate loan with less than 10 percent down. (The majority of 30-year fixed-rates FHA loans were made at the minimum of 3.5 percent down.)

The FHA made these changes because their reserves were running far short of the requirement. I understand that the FHA didn’t ask for a bailout from the federal government, but AIG, GM, and quite a few banks did get a bailout from the federal government that they have paid back or will be paying back shortly.

The FHA is effectively balancing its budget on the backs of the consumer, creating yet another barrier to home ownership. Won’t someone in the Federal government step in and make a change?

There are other options if you don’t have the 20 percent down, but the FHA is the most lenient and flexible. It’s also the most wide-reaching, and these changes will dramatically affect the number of people who can afford its services.

Today’s borrowers should not have to pay exorbitant fees because the FHA didn’t know how to assess risk in the past.

For more, call 773-557-1000 ext. 15, e-mail ron@ronmortgage.com or visit www.ronmortgage.com.

About Ron Ricchio

Renato (Ron) Ricchio is president of Chicagoland Home Mortgage. He grew up in Westchester and attended St. Joseph High School and DePaul University, taking a job as a loan officer in the mortgage industry soon after graduating with a bachelor’s in finance in 1991. He started his own company in 2001, which he operates today. He has been ranked in the top 150 loan originators in 2010 and 2011 by Origination News. Ron is happily married with three beautiful children. A board member of San Francesco Di Paola Society and the founder of Ricchio Family Toy Drive for Lurie’s Children’s Hospital, he enjoys cooking and spending time with family and friends.