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FHA Madness

The FHA recently proposed reducing the UFMIP while increasing the annual premium that is paid monthly. Their stated intention is to bolster their insurance reserve fund. Um, not so fast….

Before even running the numbers, cutting the upfront MIP which is arguably when they need the money the most, wouldn’t seem to make sense. So when in doubt, I always fire up a new spreadsheet. Not surprisingly, my suspicions were confirmed. Want to see exactly how bad it could get? Here’s a very short video to demonstrate  how it works out.

If you’d like a copy of the spreadsheet shown in the video for your own use or to engage your clients and partners, you can download it here.

So which is it?  Is the FHA just saying one thing and doing another? Don’t they have accountants that work there? Are they purposefully trying to seal their fate?

Or, for you conspiracy theorists, was this all a well concocted plan to run up the stock prices of the regular PMI companies (check the recent price action)? When you boil it all down, that’s about the only beneficial thing for at least somebody that’s coming out of this…..

My guess is that this is just another well intentioned but very poorly thought out plan by yet another government agency that fails to seek advice from those that are perhaps in the best position to offer it. If this bothers you, please check out www.immaag.com  This is run by Bill Kidwell. Bill is an esteemed broker from CO and is leading the fight against this and other proposals which are only harming the public and making it more difficult and expensive for all involved.

In the meantime, if you have any FHA/fence sitters waiting for things to get better, use the spreadsheet to show them how much more expensive their payment will be or how much less house they’re going to be able to afford once the MI costs go up.

August 8, 2010 by · Leave a Comment

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  1. Brian,

    It really is sickening isn’t. This couldn’t really come at a worse time for the consumer and the economy. In the MidWest FHA is about 70-80% of all the loans made. This will further surpress the already reduced home prices and prolong the whole recovery process. Excellent Excel sheet, really makes the madness hit home.

  2. Thanks Jeremiah. Yes, it really is. You have to wonder if there is some other ulterior motive or if they really just don’t “get it.” Anything that negatively impacts affordability will likely do the same for values. Impinging upon the nascent recovery we’ve seen at this junction may only pressure things back the other way causing more of the same troubles they are haphazardly trying to alleviate. Who are these people???????

  3. Russel says:

    That was a nice spreadsheet you did the analysis with.

    I almost wish you were wrong about those changes; they do seem rather ill thought out.

    And the potential reduction in buying power was massive.

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