Purchase loan demand jumps ahead of FHA premium increases
Mortgage rates eased slightly this week, and demand for purchase loans picked up last week to the highest level in months ahead of a scheduled increase in FHA premiums, surveys show.
Freddie Mac's weekly Primary Mortgage Market Survey showed rates on 30-year fixed-rate mortgages averaging 3.98 percent with an average 0.7 point for the week ending April 5, down from 3.99 percent last week and 4.87 percent a year ago. Rates on 30-year fixed-rate mortgages hit an all-time low in records dating to 1971 of 3.87 percent during the first three weeks of February.
Rates on 15-year fixed-rate mortgages averaged 3.21 percent with an average 0.7 point, down from last 3.23 percent last week and 4.1 percent a year ago. Rates on 15-year loans hit a low in records dating to 1991 of 3.13 percent during the week ending March 8.
For five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans, rates averaged 2.86 percent with an average 0.8 point, down from 2.9 percent last week and 3.72 percent a year ago. The five-year ARM hit a low in records dating to 2005 of 2.8 percent the week of Feb. 23.
Rates on one-year Treasury-indexed ARM loans averaged 2.78 percent with an average 0.6 point, unchanged from last week but down from 3.22 percent a year ago. Rates on one-year ARMs hit an all-time low in records dating to 1984 of 2.72 percent during the week ending March 1.
A separate survey by the Mortgage Bankers Association showed applications for purchase loans climbing a seasonally adjusted 7.2 percent during the week ending March 30 compared to the week before, to the highest level since Dec. 2, 2011.
"Applications for government loans increased by more than 10 percent over the week, for both purchase and refinance, likely spurred by borrowers seeking to apply before scheduled increases in FHA mortgage insurance premiums at the beginning of April," said Michael Fratantoni, MBA's vice president of research and economics.
For case numbers assigned after April 9, the Federal Housing Administration is increasing upfront mortgage insurance premiums on most purchase loans from 1 percent to 1.75 percent of the base loan amount.
FHA's annual premiums are going up 10 basis points, bringing the annual premiums for 30-year loans with loan-to-value ratios (LTVs) exceeding 95 percent to 1.25 percent, and 1.2 percent for others. A basis point is one hundredth of a percent.
FHA is also exercising its statutory authority to charge an additional 25 basis points in annual premiums for loans exceeding $625,500 effective June 11. Borrowers taking out loans of that size with LTVs above 95 percent will pay annual premiums equal to 1.5 percent, while others in that category will pay 1.45 percent.
When all the changes are in place, a borrower taking out a $200,000 loan to buy a house with the minimum 3.5 percent down payment will pay an upfront premium of $3,500 instead of $2,000. Annual premiums will be about $2,500, up from $2,300 a year before the changes.
A borrower taking out a $650,000 loan with the minimum 3.5 percent down payment will pay an upfront premium of $11,375, up from $6,500. Annual premiums for that borrower will be $9,750, up from $7,475 a year.
The premium increases are expected to boost FHA's mutual mortgage insurance fund by $1 billion, Federal Housing Commissioner Carol Galante said in a March 27 blog post addressing recent speculation about whether FHA will require a taxpayer bailout.
In another move to protect the insurance fund, FHA has also proposed new rules for seller concessions that are expected to have the greatest impact in higher-cost markets.
Under the proposal, the current 6 percent cap would be replaced by a maximum allowable seller contribution $6,000 for homes priced at up to $200,000, and at 3 percent of the sales price or appraised value for higher priced homes.
So under the new rule, the maximum seller concession on a $300,000 home would be $9,000 -- 3 percent of the home price -- half of the $18,000 allowed under the current rule. Comments on the proposed final rule were due March 26.
Fannie Mae and Freddie Mac have long limited seller contributions to 3 percent of the selling price, while the U.S. Department of Veterans Affairs allows 4 percent.