Why your mortgage insurance isn't going to get cheaper

This was the week many first-time homebuyers in California and around the country were supposed to see a drop in mortgage insurance fees that would have saved them hundreds of dollars a year. 

But under President Trump, the Federal Housing Administration has dropped the plan, at least for now. The decision has special implications in high-cost California, where potential savings would have been higher than other parts of the country, said Geoff McIntosh, president of the California Association of Realtors.

The Realtor's group estimated a homeowner with an FHA-backed loan would save an average of $861 a year — easing the pain of a new mortgage. (Calculations were made using the average price of a home purchased with an FHA-backed loan, about $350,000.)  

"Either you could buy more home or cover other living expenses in the household and get a little more leeway in monthly budgeting," McIntosh said.   

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The FHA backs loans for buyers who have fair credit, or can only afford a small down payment — as low as 3.5 percent. Buyers who put down less than 20 percent in a down payment are usually required to purchase mortgage insurance. In California, that insurance adds roughly $150 to $300 to a monthly mortgage bill, McIntosh said.  

Henry Wilkes, a mortgage broker in Koreatown, said the discount from the quarter-point decrease in the FHA mortgage insurance premium would have taken some of the sting out of a new mortgage.

"We screamed it from the mountaintops," Wilkes said. 

But the suspension of the rate reduction – which had been scheduled to take effect on new FHA loans insured on or after Jan. 27 — is forcing him to redo paperwork on a purchase agreement for one of his customers. He said his customers who had been looking forward to the rate cut may have to re-think their plans. 

"It definitely limits your purchase price and how much bang for your buck you can get," Wilkes said. 

Republicans disliked the rate cut, announced by the Obama administration earlier this month, because that would mean less money for the FHA to cover mortgage defaults. But McIntosh said that FHA mortgages have seen "excellent" performance since the housing crisis, and that the agency can handle a rate reduction. 

"The whole industry has changed," McIntosh said. "The loans being made today are extremely good loans to extremely good borrowers."