Just last week, Assistant Secretary for Housing and Federal Housing Commissioner David Stevens announced that FHA was changing their annual mortgage insurance plan. - FHA announcement - I wrote about it here : HR Bill 5981 - FHA mortgage insurance.
We now have some groups and people announcing these FHA Loan changes as a tax. Think Big Work Small released their version in this video on Monday. New Homebuyer Tax Starts September 2010 - 08.09.10 - Sounds scary, right? Because it sounds like the government is taxing us more. But this kind of wording irks me and can make it sound a lot worse than it is, or a lot more expensive. Let me further explain.
I do know where Think Big Work Small is going with their argument in regards to what HUD stated. HUD made this statement in January 2010.
In regards to HUD's statement above, I think I was one of first to question HUD's statement back in January and then I argued this in more detail in this post. HUD - Don't insult my intelligence about new FHA Loans changes - We can argue HUD's statements until we are blue in the face.
But my concern with others stating that this is a Homebuyer Tax is that I call this a 'spin on words'. Can we call it a tax? Sure, I will give everyone that. But why are we calling it a tax. Are we trying to make the government look bad? Is that person or group trying to make a name in the news by coming up with an interesting subject line or title? Hey, I will admit, I love stirring the pot, to get recognized. But one thing I despise are those that stir the pot but offer no solutions. If you read many of my posts over the years, I might knock on something, but I try to look at it from both sides and come up with solutions.
So let's take it a step further. Could I make this statement and be 100% correct? If FHA loans were to disappear tomorrow, would our economy crumble to the worst ever? I would say yes and I think many would agree with me. I wrote many reasons why FHA loans should not be abolished. - Should we abolish all FHA loans? - So FHA has raised their monthly mortgage insurance premiums and lowered the upfront mortgage insurance premium. Should we the tax the tax payer? Should the government print more money to pay for this? Or should we just pass this along to the borrower? I would say no, no, and yes. My question to you... aren't we trying to stimulate the economy? Yes, and to allow FHA mortgages to crumble would defeat this easily.
Summary : In many cases, the grass is always greener on the other side. Yes, we can complain that the new changes on FHA loans will hurt buyers than help them. But if the mortgage insurance fund wasn't replenished and we lost the ability to do FHA loans, then what would happen? How about this question. How come many haven't complained about the extremely high pricing hits on conventional loans with LTV's less than 80% and credit scores below 720? If I put 5% down and have a credit score of 679, my penalty would be 1.75 pts. And don't forget that the mortgage insurance factor on that scenario is much higher than on FHA loans. That is if you could even qualify for mortgage insurance. Most won't go below a credit score of 680.
FOOD for thought : Remembering the '90s. Many of you might not know or remember, but the one time mortgage insurance premium was once 300 basis points while the monthly mortgage insurance was 50 bps. Really quick.....
As you can see, your total loan amount would be even more prior to 2000. Now, if I had to choose on how to make some of these changes to FHA mortgages, I would go back to the old, because as you can see, your total payment wouldn't be as much. But FHA is hoping that people hold onto these newer mortgages longer, to recoup more money. As I mentioned in this post, HR Bill 5981 - FHA mortgage insurance, FHA would add about $2,500 more if you held onto the loan for 7 years.
So how do you look at this? Which would you prefer? What would you call this whole traffic jam of mortgage information?
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