Recent federal actions to raise the FHA-VA residential mortgage interest rates from 9 1/2 to 10 percent are not expected to cause any serious changes in the resale and new home housing markets.
Meanwhile, conventional (nongovernment backed) mortage interest rates continue in the range of 10 1/2 to 10 3/4 percent in most parts of the nation, especially where the market is active.
The upward change in the FHA-VA rate ceiling to the highest level in FHA-VA history is expected to be reflected somewhat in more use of that type of home financing because more builders and sellers will offer it to buyers because they will pay fewer (probably 3 to 4 soon) mortgage discount points in order to match the below-market FHA-VA rate structure with the general market. In some areas discount points (one point is one percent of the mortgage) had risen to 5 or 6.
Reaction from housing-related trade associations was generally predictable.
The National Association of Home Builders said the action was regrettable but understandable in the current market.
The Mortgage Bankers Association, which had been lobbying for a higher ceiling, applauded the move and predicted more use of FHA-VA mortgages.
The National Association of Realtors approved the decision as one that will help in the fight against inflation and be a step toward revitalizing the housing market.
One interpretation is that the need to pay high discount points for FHA-VA mortgages causes builders and sellers to raise the prices of housing to compensate for the higher costs. Of course, buyers now will have to pay higher interest rates and price reductions are unlikely unless the market cools.
In some borderline cases, persons seeking home mortgages may be incapable of qualifying financially for loans at the higher rate.