Mortgage Refinancing To Benefit The Little Guys

The Federal Housing Administration is set to lower its mortgage-insurance premiums beginning on January 26, a move that will help low income borrowers refinance and allow more Americans the opportunity to buy a home. The move is expected to spark a wave of refinances as well as add to the already improving housing market. 

Banks will also feel the positive effects of the FHA’s cost cutting, but it will be smaller banks that reap most of the gains from refinancing business.

Big Banks Pull Away

Banks like Wells Fargo & Co WFC and JP Morgan Chase & Co JPM reduced their involvement in the FHA lending program as they recovered from the crippling penalties they were left with after the financial crisis. Although interest rates have been on the decline for the past few weeks, most don’t see the level falling low enough to persuade homeowners to refinance just yet. But for those who have a FHA loan, the reduction could be enough to make it worth while.

Smaller Banks And Lenders To Prosper

Smaller banks whose involvement in the program has persisted will be the biggest beneficiaries of the decision. Nationstar Mortgage Holdings Inc. NSM, Academy Mortgage and Loan Depot all remain large participants in the FHA’s loan insurance scheme and will likely see a flood of customers looking to refinance in the coming year. The program is expected to draw between 100,000 and 200,000 refinances throughout 2015, according to the Department of Housing and Urban Development.