Lower FHA Mortgage Insurance Premiums Benefit Borrowers

 

WASHINGTON (January 9, 2017) – As the nation’s housing market continues to improve, U.S. Housing and Urban Development Secretary Julián Castro today announced the Federal Housing Administration (FHA) will reduce the annual premiums most borrowers will pay by a quarter of a percent.  FHA’s new premium rates are projected to save new FHA-insured homeowners an average of $500 this year.

National Association of Realtors (NAR) President William Brown says that this reduction is “a fresh start.” Brown added that “FHA mortgage products exist to serve an important mission: providing homeownership opportunities to credit-worthy borrowers who are overlooked by conventional lenders.”

FHA is reducing its annual mortgage insurance premium (MIP) by 25 basis points for most new mortgages with a closing/disbursement date on or after January 27, 2017.

Today’s action reflects the fourth straight year of improved economic health of FHA’s Mutual Mortgage Insurance Fund (MMIF), which gained $44 billion in value since 2012.  Last year alone, an independent actuarial analysis found the MMI Fund’s capital ratio grew by $3.8 billion and now stands at 2.32 percent of all insurance in force—the second consecutive year since 2008 that FHA’s reserve ratio exceeded the statutorily required two percent threshold.

Secretary Castro said FHA’s action reflects today’s risk environment and comes at the right time for consumers who are facing higher credit costs as mortgage interest rates are increasing.

“Ed Golding, Principal Deputy Assistant Secretary for HUD’s Office of Housing added, “We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers.  Homeownership is the way most middle class Americans build wealth and achieve financial security for themselves and their families.  This conservative reduction in our premium rates is an appropriate measure to support them on their path to the American dream.”

NAR President Brown commented that “dropping mortgage insurance premiums will mean a lot more responsible borrowers will suddenly be eligible to purchase homes through FHA — and that means more money in the fund to protect taxpayers.”

The NAR encourages the leadership at FHA and HUD to look at eliminating the requirement that requires FHA borrowers to maintain mortgage insurance for the life of the loan — regardless of their equity in the house. On the other hand, borrowers with traditional mortgages can–in most cases– eliminate the mortgage insurance requirement once they have reached a 20 percent equity stake in the property.

 

What Are Split Closings and Are They A Good Idea?

What You Need to Know 

I recently read an article on “split closings” that made several generalizations that could potentially add to the confusion that many buyers (and sellers) often experience when they approach the settlement or closing phase of their transaction.

The term “split closing” is referred to when two title companies are involved in issuing the policies of title insurance.  This occurs when the seller wants to use a specific title company and the buyer prefers to use another.  Under Section 9 of the The Real Estate Settlement and Procedures Act (RESPA), sellers may not make using a specific title insurance company a condition of the sale. In other words, the buyer may specify the title company of their choosing to issue the policies. However, there are exceptions.

The Exceptions

  • When the seller agrees to pay for both title insurance policies (owner and lender’s) the seller can stipulate the title company that will issue the policies.
  • If the buyer is paying for title insurance (either the lender and/or the owner’s policy), then the buyer can choose the title company of their choice to issue the policy that they will be responsible to pay for.

Confusion arises when the parties are not aware that Section 9 only deals with the purchase of title insurance and that the law does not apply to where the transaction will be closed (in other words, the closing agent).

To Explain

Even if the buyer will be paying for the title insurance and therefore allowed to use the title insurer of their choosing– the seller can still require a particular unaffiliated closing agent or lawyer be used to close the transaction.

With so many entities involved in a real estate closing, you may wonder why the buyer, or the seller, would choose to add yet another layer to the already muli-faceted process.  This is often explained when either party has either a favorite title insurance company–or one they have dealt with in the past– and one known to them to be reliable and efficient.

No Easy Answer

There is no easy answer to the question of whether there is an advantage to using a “split closing” for your transaction.  The company (or entity) that handles a real estate closing varies state to state and even county to county.  For example, in Florida lawyers are commonly used in conjunction with title and escrow companies.  On the other hand, title companies handle closings in Northern California, and escrow companies manage closings in the Southern areas.

In a number of eastern states, a lawyer will probably close the transaction. In South Carolina, North Carolina, Delaware, Connecticut, Maine and Vermont, lawyers are technically required to handle the settlement. In other states, (approximately 16) an attorney is required to prepare the deed, although the lawyer can generally be employed by the title agency or an insured branch office. In many states, including Virginia and Maryland, as well as the District of Columbia, there are attorney-assisted closings, title company closings and closing assisted by real estate agents.

Local custom is generally followed in relation to who pays for which closing costs (escrow fees, doc stamps, title insurance, etc), but those fees are negotiable. Who will pay for what should be decided before the sales agreement is signed.

Over-lapping reports and charges

  • In a “split closing” where two title companies are involved, the listing and selling agent often order a title report from their respective title companies.
  • The seller’s title company is obligated to provide a copy of their report to the buyer
  • If there is a lender, the buyer’s title company must present a copy of the title report to the lender
  • Both buyers and sellers execute their separate documents at their respective title companies
  • The buyer’s title company receives funding from the mortgage company, and is generally the one that records documents
  • Funds are wired from the buyer’s title company to the seller’s title company to cover seller’s costs and proceeds
  • Typically, the majority of the functions in a split closing are handled by the buyer’s title company.
  • When dual title policies are issued by the same company- such as a buyer’s and a lender’s policy–a discounted, or “simultaneous issue” rate is charged. When two separate policies are produced, there may be an additional charge (up to double the cost)

The only real functions of the seller’s title company will be to order a payoff of an existing loan, potentially prepare the deed, and handle the closing for the seller.  If the seller’s title company is not issuing the policy of insurance, it is likely that they will charge an additional escrow fee — and possibly other charges.

To Summarize:

If you have a favorite closing agent, by all means, make this preference known to all parties involved. The most expeditious and economical way to handle this would be for the buyer and seller to agree to use one title company for both the title search and issuance of the policies of insurance, and use individual escrow or closing agents (or lawyers) for the escrow portion of the transaction (the holding of and disbursements of funds, etc). These decisions should be made and agreed before signing the purchase contract.

As with any real estate closing, compare costs and fees among inspection companies, appraisers, lenders, lawyers, title companies, escrow companies, and any other third party involved in the sale.

Suggested Reading

How Closings are Handled State by State

How to Get Someone to Pay Closing Costs

Finding hidden costs on your closing statement

Real Estate Brokers’ Ties with Title Insurers Might Cost Colorado Consumers

Condominium and Co-op Insurance – Is there a difference?

Reader Question: Could you please address the relevant differences for co-op owners seeking adequate home insurance coverage? Are they the same as for condominium owners? JH

Reply:   Although the ownership is different between a condo unit and co-op unit owners, the insurance needs are basically the same in a condominium unit as they are for an owner in a cooperative building. The best way to know your responsibilities is to look at the Association Declaration or “Condo Docs” to assess your insurance responsibilities. You may want to look for an insurance agent that specializes in writing condominium and cooperative policies specific to your state. Community association laws can vary from state to state

According to Clifford Treese, a community association specialist who collects data for the Foundation for Community Association Research (FCAR) and for the Community Associations Institute (CAI), “There are not a lot of differences in the basic coverages for a condominium or a cooperative — as a community association.  In terms of unit owners, both will insure with an HO-6.”

Treese added, “The cooperative may have a secured party(ies), i..e lender(s) that need a mortgagee endorsement on the master/blanket insurance policy.  Cooperatives with FHA Mortgage Insurance will have a Regulatory Agreement that will require certain types of insurance.  Also, like in a condominium, the cooperative’s governing documents will need to be examined. The cooperative definitely will need Business Income/Loss of Rents — for monthly charges that cannot be collected because of a covered cause of loss.”