First-time homebuyers — the missing link in the U.S. housing recovery — are getting a break from the Federal Housing Administration’s move this week to reduce mortgage insurance premiums by half a percentage point.
For the average FHA homebuyer, the lower premium will save an estimated $900 a year, according to the agency, which attributed the reduction to the improved financial health of the FHA’s Mutual Mortgage Insurance Fund.
The FHA plays a key role for first-time homebuyers, because it issues mortgages with as little as 3.5 percent down payments and accepts lower FICO credit scores than many other lenders.
South Florida housing experts Thursday said they welcome the FHA move, but quickly added that numerous challenges remain for first-time buyers aspiring to stake their claim to the American Dream, particularly in South Florida’s unique housing market.
Hurdles facing the first-time buyer in the region range from high home prices, scarce and costly homeowners’ insurance, and competition from nimble cash-rich buyers, who can outflank those seeking mortgage financing.
The FHA move to cut the cost of FHA mortgage insurance by a half percentage point — to 0.85 percent from 1.35 percent “is a little help for buyers” and will bring the FHA mortgage insurance costs closer to the price of private mortgage insurance, said Ron Rosen, a mortgage loan originator with Abacus Lending Group in South Miami. But it isn’t likely to spur a big increase in homeownership.
“The deterrent for first-time homebuyers isn’t so much the cost of the mortgage,” Rosen said. “It’s the cost of everything else: property taxes, homeowners’ insurance, homeowners’ association fees. Those costs frankly keep increasing.”
Grant Stern, president of Morningside Mortgage in Bay Harbor Islands, said he sees first-time homebuyers in Miami — just not the stereotypical couples in their early 30s:
“The first-time homebuyers I’m getting are all wealthy and moving into this country and buying to cement their relationship with the U.S.,” Stern said. “They’re foreign nationals acquiring residences.’’
Liza Mendez, broker/owner of Pedro Realty International and past chairman of the Miami Association of Realtors, said the association has been pushing — unsuccessfully — to get the FHA to open its mortgage lending to more condominiums, most of which are no longer eligible for FHA financing because of a host of issues from reserves to insurance requirements. The inability to tap FHA financing for South Florida condos “takes out a big inventory pool for the first-time buyers,” Mendez said.
Another problem that is particularly acute in South Florida is a dearth of homes priced at the lower range and thus within reach of first-time homebuyers, who lack the purchasing power of those who’ve built-up equity in a home.
“There are more buyers than there are properties that work at their price points,” Mendez said.
The South Florida housing market has been skewed by investors — including big institutional buyers like Blackstone Group, the private equity giant — that have bought thousands of single-family homes and turned them into rentals. While those institutional buyers have pulled back from purchasing homes since prices have rebounded from their recession lows, they have held on to the properties.
Arden Shank, president of Neighborhood Housing Services of South Florida, a nonprofit agency that works with residents to help them buy and keep their homes, applauded the FHA move to cut premiums. But he said much more help is needed to get first-time buyers into the game.
“We view it [the FHA premium reduction] as an important first step — but not the be all and end all,” Shank said. “Clearly it will make a difference. We’re looking for more. We’re hoping for more.’’
Shank said he’d like to see FHA drop the requirement that borrowers maintain their mortgage insurance even after they’ve built up equity of more than 20 percent. “For the wealthy, that insurance payment doesn’t make any difference, but for the average person, that monthly payment does make a difference.”