Desert Oasis- Richland Pasco Kennewick

Last Friday, July 30^th, the House passed legislation to give the Federal Housing Administration flexibility to raise mortgage insurance premiums (PMI) on the loans it guarantees.

This bill (H.R. 5981) gives FHA the authority to increase mortgage insurance premiums from the current level set at 0.55% up to 1.55%.

Sponsored by House Financial Services Chairman Barney Frank (D-Mass), his justification was to “make sure that the FHA is both an effective and efficient means for housing finance.”

FHA was set up to insure relatively inexpensive mortgages for low-income borrowers. But their share of the mortgage market sky-rocketed after the collapse of the “sub-prime” mortgage market.

That surge at FHA also meant more defaults and when combined with the larger volume of loans made, FHA’s capital reserves dropped below the 2% level mandated by Congress. Allowing FHA to increase it’s premiums would allow the agency to boost its dwindling capital reserves.

So, what’s so bad?

It’s estimated this extra 1% in premiums will add $300 million PER MONTH to FHA’s capital reserves. (Understand, this monthly amount is in addition to the up-front mortgage insurance fee paid at the closing of a home)

This is being sold by Frank and his cohorts in the House as a “cost-saving measure for the consumer.”

WHAT???

How can this fee increase FHA’s coffers by $300 million per month and still save consumers money at the same time? It can’t.

So, why don’t we all agree to call a spade a spade? If it’s mandated by Congress, it raises revenue for the government by assessing a percentage fee charged against a product or service, and the fee is collected and forwarded to the government… IT’S A TAX!!!

And this tax is being assessed against “low-income home owners”. Where’s Obama’s pledge to only increase taxes against those American’s making $200,000 or more per year?

“But we’re only doing this until the 2% level is back up for FHA’s capital reserves” is what our friends in Congress will say.

REALLY?

Anybody heard of the Telegraph Tax?

In 1848 the government needed money to pay for a little incursion into a foreign country now called “The Mexican-American War”. They instituted a tax on telegraphs to pay for this war. Now, 152 years later, whenever you pick up a phone, you pay a tax for that service, and the tax goes to pay for the Mexican-American War!

Have you ever heard of a tax, that once instituted, went away once the stated dollar amount it was designed to raise was met?

What’s even worse, our current economic level has been reached almost entirely due to the fairly good housing market of the past 24 months. Most agree we need to increase home ownership opportunities through safe lending practices to build up the rest of the economy.

Adding 1% per month to insurance premiums at FHA so they have more money in the coffers isn’t going to do that! Understand, FHA doesn’t actually loan the money for a mortgage; it guarantees the loan the bank makes!

On a typical $200,000 home purchase, the PMI (monthly mortgage insurance premium) payment is about $125. The new rate (TAX) would be about $249, or $124 more. For a large percentage of borrowers, increasing the monthly payment by 1% would knock them right out of being able to afford a home on their pay. Or, they make the choice to stretch their budgets to meet this level, and now we’ve a higher chance they’ll end up defaulting on the loan!

Yep, that’s the solution Frank and the House has come up with to help our housing market.

The Tri City Home Team is committed to providing our Tri-Cities WA clients with up-to-date information that affects their home buying, selling and ownership in addition to the services we offer during their purchase and sale. Please contact us with any questions or to request an appointment.