As one of its last acts of 2011, Congress voted to extend the payroll tax deduction portion of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The measure cuts payroll taxes by 2 percent during January and February of 2012.
To pay for the $33 billion program, Congress is requiring Fannie Mae, Freddie Mac and the FHA to raise their respective loan fees. In doing so, it's the U.S. homeowner who will cover the tab.
Starting very soon, by law, every mortgage applicant for a conventional or FHA mortgage will face higher loan fees.
Those that act today can beat the fee increase.
Homeowners can expect to pay hundreds more
It's written plainly in the law. Beginning on page 17 in the section titled "Mortgage Fees and Premiums," Congress directs Fannie Mae and Freddie Mac to add no less than 10 basis points in new fees to its "new mortgages" annually. It directs the FHA to do the same.
For homeowners with a $200,000 mortgage, the 10 basis point increase adds an extra $200 in loan costs per year, or roughly $17 per month. Additional fee hikes have not been ruled out, either.
Fannie Mae will collect fees for all loans delivered (i.e. securitized) on or after April 1, 2012. Freddie Mac will collect for all loans settled (i.e. closed) on or after April 1, 2012. The difference between Fannie and Freddie's respective fee schedule is an important one.
Fannie and Freddie's fee schedule
Fannie Mae marks its fee start date by the "delivery date," meaning the date the loan is received by Fannie Mae. Delivery dates happen after a loan closing -- after a lender has audited the file for quality control and packaged it cleanly. A loan can take 30 days or more to be "delivered" once it's already closed.
As a result, banks that sell exclusively to Fannie Mae may start showing the payroll tax extension fee as soon as mid-January 2012.
By contrast, Freddie Mac set its fee start date based on "settlement date" -- the date of the actual closing. Freddie Mac loans won't show the new fees unless they're set to close after March 31, 2012.
Ask your lender to which group your loan may be sold. It could save you a lot of money.
FHA mortgage insurance premiums rising
On top of the added loan fees, the FHA is raising its mortgage insurance premiums, again. The FHA has been directed to increase its mortgage insurance premiums by 10 basis points, marking the third time in two years that the FHA has raised its monthly premiums.
FHA refinancers have the most to lose
While of course this added premium is costly to FHA homebuyers, it's FHA refinancers who have the most to lose.
Each time the FHA raises its mortgage insurance premiums, it becomes harder to qualify for the FHA's staple refinance product -- the FHA Streamline Refinance.
The FHA Streamline Refinance is the FHA's version of HARP -- it targets underwater homeowners.
The FHA Streamline Refinance is basic: if your payments are on time, and as long as you don't add to your loan balance, the FHA will agree to lower your mortgage rate for you.
There is one caveat.
The FHA Streamline Refinance program requires that your new mortgage payment -- defined as principal, interest, plus the MIP -- must be reduced by 5 percent or more. For example, if your current FHA monthly mortgage payment is $1,000, your new payment must be $950 or less to qualify.
Loans that fail to meet this "net tangible benefit" of 5 percent savings or more are denied a FHA Streamline Refinance in underwriting.
Qualifying is only getting harder
Each time FHA mortgage insurance premiums rise, it gets harder for FHA-insured homeowners to meet the 5 percent savings requirement. If you've been stalling on a FHA refinance, get a move on, qualifying is only getting harder.
As soon as the FHA announces its increase, thousands of FHA households will be rendered ineligible for the FHA Streamline Refinance.
Beat the payroll tax -- apply now!
The payroll tax extension fees have not yet been implemented, but they're coming soon. If you're applying for a mortgage, get "instant savings" by locking now and closing quickly.
Dan Green is a loan officer with Waterstone Mortgage in Cincinnati, Ohio, and the author of the nationally recognized mortgage blog, TheMortgageReports.com. As well as serving the purchase and refinance needs of his clients, Dan speaks to national audiences about mortgage rates and the mortgage market. Follow him on Twitter at@mortgagereports.
