Applications for FHA-guaranteed loans fell nearly 20 percent last week after the government hiked upfront premiums for the mortgage insurance program, the Mortgage Bankers Association said in releasing the results of its Weekly Mortgage Applications Survey.

Applications for conventional mortgages were also down, with demand for refinancings falling for the fifth week in a row as mortgage rates reversed recent increases but remained elevated above their previous lows.

With claims mounting on the Federal Housing Administration’s mortgage insurance program, the Department of Housing and Urban Development (HUD) in January announced several steps to cut costs and raise revenue.

HUD raised upfront premiums paid by FHA borrowers — previously set at 1.75 percent — to 2.25 percent for loans assigned case numbers on or after April 5. Some demand for FHA loans may have been pushed forward, as loan originators were advising clients who were planning to purchase a home with an FHA mortgage to apply in time to beat the deadline.

The Obama administration has promised to reduce upfront premiums to 1 percent if Congress gives it the authority to charge borrowers higher annual premiums for FHA mortgage insurance instead. HUD wants to increase annual premiums from a maximum of 0.55 percent today to no more than 0.9 percent (see story).

In addition, HUD plans to reduce allowable seller concessions on FHA-guaranteed loans from 6 percent to 3 percent this summer, and require borrowers with credit scores below 580 to make downpayments of at least 10 percent.

The MBA said that during the week ending April 9, applications for purchase loans were down a seasonally adjusted 10.5 percent from the week before, and off 17.5 percent from a year ago. Demand for government purchase loans, mostly FHA-guaranteed mortgages, was down 19.1 percent from the previous week, while applications for conventional purchase loans were down 2 percent.

Demand for refinancings was down for the fifth consecutive week, with an index tracking refi applications falling 9 percent.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.17 percent from 5.31 percent, with points increasing to 0.91 from 0.64 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate also decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.45 percent from 4.54 percent, with points decreasing to 0.80 from 0.92 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased from last week.

The average contract interest rate for one-year ARMs decreased to 7.02 percent from 7.03 percent, with points decreasing to 0.27 from 0.29 (including the origination fee) for 80 percent LTV loans.


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