There is a lot of buzz in the industry right now about Mortgage Insurance, specifically whether or not it should be lowered. But what is it and why do we keep hearing about it?
In simple terms, mortgage insurance is just that - Insurance. But unlike homeowner’s or car insurance, it isn’t for the borrower. It’s for the lender.
When lenders loan out money, they like to have a safety net; usually in the form of a large down payment. But for borrowers that don’t have the typical 20% down, they can instead pay an “insurance'' to the lender in either monthly installments or an up-front fee at loan closing. This helps protect the lender from a loss on the loan, if the borrower happens to miss payments and go into foreclosure.
However, with foreclosures at pre-pandemic lows and mortgage insurance companies holding onto significant capital, some in the industry are asking if it’s feasible to lower MI rates. Basically, to give borrowers a break and make house payments a little more affordable.
The Mortgage Bankers Association recently requested that FHA lower their Mortgage Insurance Premiums stating: "Against the backdrop of robust FHA capital reserves and rapidly deteriorating affordability, it is critical for the Administration to ensure low-to-moderate income and first-time homebuyers are not left behind." (MBA, 2022).
FHA does have some of the best products available for borrowers with credit bumps and bruises. But their mortgage insurance rate is a bit pricey and remains in effect for the life of the loan in most cases.
Though this specific proposal would not affect Private Mortgage Insurance rates, it will be interesting to watch and see what FHA decides to do. Check back in for any updates to this evolving story. And for more content like this, check out trythecoop.com.