The FINANCIAL — ATTOM Data Solutions, curator of the nation’s largest fused property database, on January 19 released an analysis that found that borrowers across the country could potentially save an average of $446 a year under the new mortgage insurance premium reduction set to take effect later this month for loans backed by the Federal Housing Administration.
Based on a 2016 median sales price of $185,000 nationwide for homes sold to buyers using an FHA loan, a monthly house payment — including property insurance and property taxes — at the current annual FHA insurance premium of 85 basis points would be $1,205. With the proposed FHA insurance premium of cut of 25 basis points bringing the annual insurance premium down to 60 basis points, the monthly payment on the same median-priced home would be $1,168, a difference of more than $37 a month and $446 a year. Over five years the average savings would add up to $2,232, and over 10 years the average savings would add up to $4,463, according to Realtytrac.
Among 444 counties with a population of at least 100,000 and sufficient home price data for sales using FHA loans, those with the biggest potential annual savings resulting from the premium reduction would be Santa Clara County (San Jose), California ($1,448); Honolulu County, Hawaii ($1,399); Maui County, Hawaii ($1,276); Alameda County, California in the East Bay ($1,267); and Santa Cruz County, California ($1,253). There were a total of 13 counties with average annual savings of $1,000 or more.
Among those same counties, those with the smallest potential annual savings resulting from the premium reduction would be Bay County, Michigan ($193); Saginaw County, Michigan ($205); Trumbull County (Youngstown), Ohio ($213); Rock Island County, Illinois ($238); and Peoria County, Illinois ($241).
“The last FHA premium cut two years ago helped to trigger a relatively short-term jump in home sales to FHA buyers, who are typically first time homebuyers without much saved up for a down payment,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Prices of homes backed by FHA loans also accelerated higher in the wake of that last premium cut, although that premium cut occurred concurrently with a drop in mortgage rates, a scenario that is less likely this time around.”
FHA home sales trends and price trends following previous premium cut
Home sales with FHA-backed loans rose to a more than six-year high of 168,992 in Q3 2015 following a previous cut to the FHA insurance premium in January 2015. Following that 50 basis point reduction, the share of home sales using FHA loans increased for three consecutive quarters, from 12.5 percent in Q4 2014 to 16.7 percent in Q3 2015. Since Q3 2015, the share of FHA home sales has basically flat-lined between 15 and 16 percent.
Prices of homes financed with FHA loans accelerated following the 2015 premium cut. Median home prices for FHA loan-backed home sales increased 5 percent on a year-over-year basis in Q1 2015, but that annual appreciation doubled to 10 percent in Q2 2015 before slowly drifting back to the 5 percent annual appreciation in Q3 2016.
FHA foreclosure rates twice as high as foreclosure rates on all other loans
Foreclosure rates on FHA-backed loans have historically trended higher than foreclosure rates on all other loans. ATTOM Data Solutions data shows that 1.07 percent of all FHA loans were actively in some stage of foreclosure as of the end of 2016, nearly twice the foreclosure rate of 0.54 percent on all other loans. The elevated foreclosure rate on FHA-backed loans has stayed fairly consistent historically, but the gap has narrowed and widened somewhat depending on loan vintage.
Effectiveness of previous FHA premium cut called into question
Some contend that the previous FHA premium cut did not reach its intended goals of giving buyers an average of $900 in additional purchasing power or incenting an additional 250,000 home buyers in the three years following the cut. An analysis by the American Enterprise Institute of property-level FHA and conventional loan data in 23 counties across 12 states from ATTOM Data Solutions concludes that:
“… about half of the additional purchasing power from the premium cut either was lost through price increases or used by buyers to go up-market. A second key result is that FHA is not on track to reach its stated goal of spurring 250,000 first-time buyers to purchase homes over the three years after the premium cut. Although FHA’s first-time buyer volume increased about 180,000 in the first year after the cut, only an estimated 35,000 of those buyers were incentivized by the lower premium to enter the market. The remainder were either poached from other government agencies or represented trend growth in the market unrelated to FHA’s premium cut.”
Discussion about this post