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FHA insured mortgages to cost more

Marketplace Staff Jan 22, 2010
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FHA insured mortgages to cost more

Marketplace Staff Jan 22, 2010
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TEXT OF STORY

TESS VIGELAND: Here’s another wrinkle for consumers: New home buyers will have to pay more for mortgages insured by the Federal Housing Administration. The FHA says it had to toughen the rules because too many of its loans were going bad.

Marketplace’s Nancy Marshall Genzer has the details.


Nancy Marshall Genzer: The Federal Housing Administration doesn’t make loans; it insures them. And now home buyers will have to pay more for that insurance. How much more? The FHA insurance premium you pay when you close your mortgage will jump by half a percentage point. That would add $1,000 to the cost of a $200,000 loan.

Paul Leonard is the California director for the Center for Responsible Lending.

Paul Leonard: These new requirements will have a substantial impact on a large number of borrowers. They’ll pay more in premiums upfront and potentially over time.

Over time, because the FHA plans to ask Congress if it can raise the limit on annual premiums for FHA-backed loans. The FHA will also require consumers with credit scores lower than 580 to make down payments of at least 10 percent. But that change shouldn’t affect many borrowers. It’s already almost impossible to get a loan with a credit score that low.

David Berenbaum is with the National Community Reinvestment Coalition. He says the new rules don’t put home ownership out of reach.

David Berenbaum: Consumers will have to save. They will have to work toward the goals of homeownership. But for many, affordable housing units in America, it’s very, very doable.

The FHA wants to keep risky borrowers from buying homes. Housing analyst Karen Petrou of Federal Financial Analytics says the FHA had to tighten up the rules.

Karen Petrou: To the degree that it insured loans that were unsafe for the borrower, risky homeownership was perpetuated. The borrower was at risk of foreclosure and the FHA ultimately paid for that.

The FHA had to pay off lenders when borrowers defaulted on FHA insured loans. Its reserves plummeted. The new fees will go toward fattening them back up again, so the FHA doesn’t have to turn to taxpayers for money.

In Washington, I’m Nancy Marshall Genzer for Marketplace Money.

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