New homeowners will get savings under Fed change

Jan. 09--Future homeowners in pricey Southern California got welcome news Monday after weeks of rising mortgage rates.

The Federal Housing Administration announced Monday it will reduce the annual insurance premiums most borrowers will by pay by a quarter of a percent, saving the average homeowner $500 this year, said U.S. Housing and Urban Development Secretary Julian Castro.

In San Diego County, the seemingly minor change will have more of an impact because home prices here are higher than much of the nation, saving the average borrower around $1,200 a year.

The rate change is basically immediate, applying to all homes that close escrow after Jan. 27. It only applies to federally-backed loans.

"After four straight years of growth and with sufficient reserves on hand to meet future claims, it's time for FHA to pass along some modest savings to working families," Castro said in news release.

Lower FHA rates also have an indirect path to homeownership as they only provide a back-up for lenders. The annual fees paid by borrowers are used to fund the administration's insurance fund, which protects the agency from loans that go bust.

Kurt Branstetter, a senior loan officer in San Diego and branch manager at Nova Home Loans, said an extra $100 a month will be beneficial for borrowers already stretched thin.

"It's a big deal and it's good. Whether it sticks, we'll see," he said.

Branstetter said the reduction was a good start but he'd also like to see the premium rate expire at a certain point. Right now, borrowers pay the premium until the loan is completely paid off.

Before 2013, most borrowers could stop paying the premiums when the principal reached 78 percent of the balance. At the time, the Department of Housing and Urban Development made the change because it said borrowers paying for the life of the loan would allow the agency to "better manage risk and further strengthen" its insurance fund.

On Monday morning, the rate for a typical 30-year fixed rate mortgage with 20 percent down was 4.15 percent, said Mortgage News Daily. While still higher than before the election, it was a big drop from 4.36 percent a week earlier.

The change is partially the result of lower bond yields, brought on by increased investment in the United States because of uncertainty in global markets and other factors. Mortgage rates typically track the yield on the U.S. 10-year Treasury.

In general, federally backed loans have smaller down payments and help more people enter the home market. In the latest weekly report from Mortgage Bankers Association the last week in December, FHA mortgages made up 11.6 percent of loans.

So, what does this mean for the couple thinking of buying a home in El Cajon?

Matthew Shaver, a San Diego senior mortgage consultant at Finance of America said he would advise to buy now to lock in the lower mortgage rate.

In the wake of Donald Trump's election victory, Shaver was advising clients to wait until the market calmed down. Now, he said rates have gone back down enough and, with almost all indications prices will continue to rise this year, it would make sense to consider buying.

"Somebody looking to buy a $400,000 home this year?" he said. "I'd say, 'Don't wait.'"

For current homeowners, the lowered premium rate could only benefit them if they refinanced their home. But, chances are, they had a lower mortgage interest rate when they bought -- meaning they could end up paying more and canceling out any premium rate savings.

phillip.molnar@sduniontribune.com (619) 293-1891 Twitter: @phillipmolnar

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