The allowable interest rate on federally insured, single-family mortgage loans will increase to 8 3/4 percent today from the 8 1/2 per cent level that has been in effort for FHA-VA loans since last May.
Secretary of Housing and Urban Development Patricia Harris said the rate change "is expected to increase the availability of FHA financing for moderate-income buyers and sellers." As usual, the Veterans Administration kept its maximum in line with the ceiling set for loans insured by the Federal Housing Administration.
Conventional mortgage rates have been rising in recent months and now are generally more than 9 per cent, with quotes for non-federally-insured mortgages now at 9 1/4 per cent to 9 1/2 per cent in this area.
Because of the disparity between FHA-VA and conventional rates, sellers of houses with federally insured or guaranteed mortgages have been paying premiums as high as 5 and 6 discount points (one point equals 1 per cent of the total loan) at settlement to make the house more salable. FHA-VA buyers cannot pay more than 1 discount point. The maximum FHA mortgage now can be $60,000.
Reaction to the rate change, which had been expectedly by the home building and finance industries, varied. The change was "unfortunate but inevitable," said Ernest A. Becker, president of the National Association of Home Builders. "An increase of only 1/4 of 1 per cent does not reflect current market conditions," said John Opperman, president of the Mortgage Bankers Association, who added: "An increase of at least 1/2 of 1 per cent was clearly warranted."
Although the rate increase will mean a $6.30 higher monthly payment on a 30-year, $35,000 FHA or VA loan, the general reaction is that more mortgage money will be made available and that points charged to sellers may decline by 1 1/2 to 2 points. The new FHA-VA ceiling is still about 1/2 per cent below the effective conventional rate here.
Housing economist Michael Sumichrast said that rising interest rates on mortgages reflect declining amounts of deposits flowing into thrift institutions making home loans. "I am worried about even higher rates coming," said Sumichrast, vice president of the NAHB.
Kenneth Murphy, who works with builders and buyers as a marketing official with Long & Foster Realtors here said: "Builders do not like paying 4 1/2 to 5 discount points so they should be pleased, and buyers using FHA-VA may be able to get more loans at a result of this action."
The interest rate for multi-family FHA mortgages remains unchanged at 9 per cent.