Ok, with that settled, let's get into the nitty-gritty behind these happenings.
When the "holiday" payroll tax cut was extended on December 23, 2011, it seemed like a positive thing to the average person. However, for the average person getting a loan to refinance or buy a new home, the tax cut has made it so that they end up paying for the rest of the nation to enjoy a few more dollars every pay check through increased mortgage costs. How? Well, in order for Congress to pay for the $35.7 billion tax cut, they imposed a 10 year increase on guarantee fees charged by Fannie Mae and Freddie Mac, a fee that would be ultimately be passed on to consumers looking to get a new Fannie Mae or Freddie Mac-backed home loan. The amount of the increase is equal 10 basis points, i.e. either an increase in mortgage rates or an increase in fees the consumer pays.
The fee increase, as noted above, will officially be put in motion on April 1st, 2012, however many mortgage lenders have already started charging for this extra fee. With rates at extreme lows, many say this increase will not affect whether or not someone buys a new home or refinances, but once rates do start to tick up, this increase will be felt across the board.
So obviously, with Obama urging Congress to continue the payroll tax cut for the rest of the year, the mortgage industry was quaking with fear that it would impose an additional increase. Luckily, on February 16th, when Congress passed legislation to continue the payroll tax cut through the remainder of 2012, it did not include another increase to guarantee fees charged by Fannie Mae and Freddie Mac. (Sigh of relief).
HUD's announcement of an increase in mortgage insurance premiums is also a direct result of the payroll tax cut in December, and as many analysts have pointed out, comes at a time when the FHA needs to increase its reserve fund. At present, the FHA reserve fund is below its congressionally-mandated level, and even the White House notes the possibility of its reserves running out in 2013. So, the increase in mortgage insurance premiums will help the FHA grow its reserve funds. Note: The FHA does not give loans, rather it insures lenders for mortgage losses in the case of default; and its source of revenue comes from upfront and monthly mortgage insurance premiums from borrowers.
What is the final conclusion of this blog? Mortgage interest rates are going up for both FHA and Conventional Loans; Congress has made sure of that. April 1st, 2012 is the deadline. My suggestion for those thinking about refinancing or buying a new home, (or if you know someone who is thinking about it) get on the phone and find a good rate (or share this blog with the person who is on the fence ). A phone call doesn't hurt, and your friend will thank you later.