Lenders Ask HUD To Raise FHA Rate: Lenders Request FHA Rate Increase
Mortgage lenders are pressing the Department of Housing and Urban Development to raise interest rates on FHA loans as a way to stop ÛÏdeteriorationÛ of the home sales market.</br></br>The Mortgage Bankers Association has asked HUD to raise the FHA rate by ÛÏat leastÛ half a percentage point, from 11 Vi to 12 percent, said Mark J. Riedy, executive vice president of the organization. The Federal Reserve Board is loosening its control of the money supply, putting pressure on long-term interest rates, he said.</br></br>ÛÏWe asked for [the increase] orally, and we will put it in writing if we have to,Û Riedy said. He predicted HUD would raise the rate within days but a department spokesman said the department has no plans for an FHA rate hike.</br></br>-A result of rates pegged too low for the market is?iip.e addition of points, usually charged to home buyers rather than sellers. A point equals one percent of the mortgage amount, and as many as six arid seven: points now are being charged, ÛÏin the range where it begins to stymieÛ home sales, Riedy said. ] *Qurrently, most lenders, particularly mortgage bankers, make a loan with the expectation of selling ,it to investors in the so-called secondary mortgage market. When the interest rate on the loan is too!|low to attract investors, the lender must discomfit it. The discount raises the yield of the loan tovthe investor and encourages him to buy.</br></br>'j.pj'he lender tries to make up for the discount by charging points, and when, as with an FHA loan, th& government sets the interest rate well below market, the number of points becomes quite large.