50 SHADES OF FHA

B&D, FHA style. wikimedia commons pd

B&D, FHA style. wikimedia commons pd

Numbers are the least sexy part of real estate. But let me see what I can do here to pump up the excitement: $98 a month, that’s what Obama’s new mortgage change will mean to the average Portland home-buyer who’s hot for an FHA loan.

FHA loans do help people of limited means slip into comfortable homes. But these loans tend to be turgid with fees. Among the most rapacious of these is the “mortgage insurance premium.” Right now, that fee engorges the purchase cost of your house by 1.35%.

This may not sound like a huge hunk, but whip out your calculator. Actually, let’s ask my smokin’ hot pal Laura D’Andrea (laura@lendersnetwork.biz) to whip out her calculator: She’s a Portland mortgage originator, and would be the first to assure you that size does matter. Taking an average Portland home, here’s the impact of the sleeker, stripped-down mortgage insurance premium (MIP). For a $245,000 house:

With the minimum 3.5% down payment, under the current MIP rate, you’ll pay about $266 each month just for the MIP. But for that same loan approved after January 26, the MIP payment will be $98 less. Over the life of a 30-year loan, that’s $35,280 in your pocket.

That’s $35,280 you could spend buying the house you’re passionate about vs. the house your mother would choose for you.

Now, two things about the MIP still rub me the wrong way. With “conventional” loans, you can slip the sweaty grip of MIP once you’ve paid for 20% of the home. After all, the whole point of mortgage insurance is to make sure the lender can recover its money if you pull a one night stand–and if the home is worth 20% more than the loan balance, the lender should be safe.LD

But FHA plays rough. It’s going to squeeze you tight for the entire life of the loan. So go ahead and take a tumble with this enticing new MIP. But keep that safe word on the tip of your tongue: Refinance!

YOUNG HOME BUYERS: THE LOST GENERATION

Portrait of a Banker/CLouet [PD] Wikimedia

Portrait of a Banker/CLouet [PD] Wikimedia

Houses aren’t always great investments, but they are almost always a better way to spend your housing dollar than renting is. And right now, a generation of young people is missing that opportunity to build equity.

OK, not the whole generation. The real numbers: First-time home buyers normally make up about 40 percent of the housing market. Just at this lousy moment, however, they make up 33 percent. It’s the lowest fraction in decades.

I am weary of the term “perfect storm.” And while I have always been partial to the term “clusterf*ck,” it is, as my mother would say, uncouth. It’s time for a new natural disaster with poetic potential.

Idiom notwithstanding, a few tributaries pour their tears into the current swamp of mortgage woe.

1. Many banks acted deplorably; caused the housing bubble; and as a result, made abject groveling for credit harder than ever.

2. Many colleges forgot their mission; students, never a particularly pragmatic demographic, apparently chose colleges for their stance on organic kale; and student debt achieved bizarre and novel proportions.

2.1 (The soaring cost of health care has also been ratcheting up alllll the money gears, too, as more medical interventions are invented and each of us feels entitled to try each of them. But I’m trying to be succinct.)

3. And a seller’s market has been holding sway, pushing up prices and undermining humble offers based heavily on borrowed money. Cash is king.

So “kids today” have a hard time borrowing, both because they’re already dragging around debt, and because banks are on shorter leashes.

So these young people are renting. Which is currently an expensive way to go, given the low supply and the high demand for rental housing. And that makes matters worse: Expensive rents make it that much harder for people to save money for a down payment. Even FHA loans require 3.5 percent down. For a $200,000 “starter home” that’s $7000.

To escape the usurious private mortgage insurance and assorted other monstrosities, you have to put down 20 percent. Otherwise, about $225 of your monthly payment will fly into the ghastly black hole of an insurance policy to protect the lending institutions from their own deplorable behavior and crummy judgement.

Result: A chunk of the population is sidelined, both from the opportunity to direct their income toward equity, and from the civic awakening that comes with writing that first property-tax check.

It seems like Things Might Happen. Losing 20 percent of first-time home buyers seems like it could produce a few ripples. But only time will tell.