On Wednesday, The House of Representative passed the Housing Financial Literacy Act of 2019…also called HR 2162. The bill modifies the discount giving the by Federal Housing Administration (FHA) on single-family mortgage-insurance premium payments for first-time homebuyers who completed a financial-management counseling program.
Now, if you’re a real estate agent and you’re thinking “this feels familiar”…it should! We’ve been here before. See FHA policies are like Disney movies. You don’t make new ones…you just spruce up old ideas.
So why are they looking to change this policy? Because the congressional mandated MMI Fund is FAT!! And I mean FAT. It is overflowing with money.
The MMI fund is the Mutual Mortgage Insurance Fund that covers both FHA and HECM (better known as reserve mortgages) and has 2 separate accounts. 1. Finance account 2. The Capital Reserve account. The Finance account pays the note holder when a borrower defaults on their loan. The Capital Reserve account is for unexpected losses. Think a nest egg for you and me. Now, the MMI fund has a congressional mandate that is must remain above 2% for all FHA and HECM loans. If you think about all the amount loans they insurance, 2% is a lot of money…and I mean a lot of money!
Now, back in 2008 during the housing crisis, FHA had to pay out a lot of money when all the foreclosures happened. They fell below the 2% and were in danger of collapse (meaning a bail out). So what did they do? FHA raised the mortgage insurance on FHA deals to get he money replaced.
Now since then….the housing marketing and economy has recovered. They are paying out record low claim, while receiving in records levels of cash. Now, they are over flowing with money, so now, that does FHA do? They are have a sale of FHA MI!! If a first-time homebuyer takes a homebuyers class, they can save .25% off their funding fee. (reducing it from 1.75 to 1.5%)
So, where are we now? Now that the bill passed the House, it is in the Senate and will get read twice and referred to the Committee of Banking. If it passes the Senate, the bill will go to the President’s desk for signature and then become a law.
Stay tuned to Foote Capital as we keep you updated on this policy change and other mortgage related news.
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