FHA loans get more expensive, AGAIN

It’s been recently announced that FHA loans are going to get 0.25% more expensive.

Starting April 19th, FHA loans will carry monthly Mortgage Insurance Premiums over 1.00%.  This is an additional increase of roughly 0.25% over the increase we already experienced at the beginning of the year.

Recently there has been a lot of speculation in the media that the Government may be winding down their involvement in the mortgage markets.  Talks about structural changes to Freddie Mac and Fannie Mae, rumors about the end of FHA lending and talks about the mortgage markets being completely privatized are all interesting talking points.

However, if we think this through rationally, we have to remember two things.  1)  Ask yourself, when is the last time a Government Agency actually shrank in size or was shut down completely?  2) With the housing industry still in a state of flux, there is currently no private entity or group of entities that can replace the giant amount of mortgage guarantees that the Government currently covers.

What is more likely is that Government backed financing, through entities like the FHA and VA, will continue to get more expensive.  This, in turn, should encourage private investors to come back to the mortgage market as they can earn a better rate of return while still being competitive with rates offered by Government backed mortgages (like those offered through the FHA).

I believe this April 18th increase in cost to FHA loans is just the first of many cost increases coming over the next few years.