The Obama administration released new program guidelines in April which, once implemented, will help people with federal insured mortgages – that are NOT eligible for a HARP 2.0 refinance because their loans is not backed by Fannie Mae or Freddie Mac – refinance into a lower rate/payment loan. The white house is estimating between 2 and 3 million homeowners could benefit from the program, reducing mortgage payments for the average FHA borrower by $1,000 a year (in California I see the savings being even more).
Homeowners would be able to refinance into a new FHA loan at today’s current rates without paying the current rate for FHA Mortgage Insurance. The UFMIP (Up Front Mortgage Insurance Premium) would be 0.1% of the loan amount (compared to 1.75% on a standard FHA loan) and an annual fee of 0.55% (compared to 1.25% currently). A HUGE savings from a standard FHA refinance, fees that make FHA refinancing not make sense today.
According to the administration, lowering refinancing fees “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.” And I agree with them!
This FHA refinance fee reduction is the latest in a long line of administration initiatives intended to jump start the housing market and, by extension, the economy. Some have worked quite well, others haven’t done all that much… The idea is that by reducing mortgage payments, both with the HARP program and the new FHA Streamline fees, it frees up money that can now be spent on other things elsewhere in the economy (the “velocity of money” is a real force and the more money people spend on consumer goods the more the economy recovers, and the cycle continues).