How Much FHA Borrowers Can Save in House Payments Under Obama Proposal: County-Level Analysis

President Obama last week in a speech proposed lowering insurance premiums on FHA-insured loans by 50 basis points, and the U.S. Department of Housing and Urban Development claims this would save more than 2 million borrowers over the next three years an average of $900 annually in house payments.

For those who don’t speak mortgage-ese, this reduction in insurance premiums means that instead of paying 1.35 percent of the loan amount each month in mortgage insurance, borrowers will now be paying just 0.85 percent of the loan amount each month.

RealtyTrac analyzed the data and found this reduction represents a savings of $917 a year on a median-priced home nationwide, which is close to the claim HUD has made. But we all know that no one actually pays the national median price for a home. People pay the price of a home in their market.

So RealtyTrac also looked at this on a county-by-county basis and created the following heat map to show where homebuyers will save the most, and also what markets would be considered affordable for median income earners — where a median income earner would need to spend 28 percent or less of his or her income to purchase a median-priced home — after the reforms, and which markets would still be unaffordable after the reforms.

Through November, more than 800,000 FHA loans — including both purchase and refinance — were originated nationwide in 2014. Add that to the previous two years and there have been more than 3.1 million FHA loans originated since January 2012. If FHA loans continue at that pace, HUD’s claim of 2 million borrowers who will benefit from the FHA premium reduction will be attainable.

FHA loans have historically performed worse in terms of foreclosure rates, however, adding fuel to the fire of some critics who argue that widening the funnel for FHA loans will only worsen the foreclosure rate, which in turn could end up costing tax payers if the FHA insurance fund is not enough to cover losses from those theoretically higher foreclosures. Foreclosure rates spiked on FHA loans originated in 2008 — when the FHA stepped in to fill the gap left by subprime loans — although they dropped dramatically for FHA loans originated in 2009, when the FHA closed some loopholes in their underwriting standards.

Overall 1.34 percent of all FHA loans are in the foreclosure process compared to 0.72 percent for all other loans, according to RealtyTrac data. FHA loan foreclosure rates have consistently been higher than other loans over the past 25 years, although overall foreclosure rates have dropped below historical norms in the past five years thanks to much tighter lending standards.

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