The Seattle Times reports that the Senate has passed a bill allowing for some changes in the FHA fee structure, under the fascinating but slightly misleading title “Senate Approves Higher Government Mortgage Fees.”

One fee goes up (probably, depends on FHA bureaucrats), and one comes down (ditto).  Monthly mortgage insurance (which the Post calls an “annual fee” for some reason) rises from an annualized .55% of the loan to .9%, with the FHA having authority to take it to 1.5%.  But the up-front mortgage insurance fee (UFMIP), which had been 1.75% and is now 2.25%, will come down to 1%.  The net change is measurable, about $40 more per month on a typical mortgage in Utah, so the fees are being “raised” in that sense, but more importantly, they’re being shifted.

And why?  Glad you asked.  Whatever the stated rationale for the change in fees, the effect will be to increase the competitiveness of FHA loans vs. conventional financing, by decreasing the UFMIP to 1% and increasing the monthly MI, FHA loans will more closely match their conventional counterparts, but with just a 3.5% down payment requirement, FHA will now have an even clearer advantage in the marketplace.  Borrowers were skittish (and rightly) of paying a whacking 2.25% of the loan amount in UFMIP.  The number for a $200,000 mortgage in Utah is $4500, and that’s a massive and visible addition to your closing costs when shopping for a loan.  Under the new rules, it would be only $2000, a much more manageable number.  Then the fee increases are hidden in the monthly payment.  Presto!  Much more palatable to the consumer, and more money for the FHA.

Expect the changes to take effect around October 1.

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