This will become a big deal in the next 3-5 years, but the 30 year fixed loan will not go away.
Here's a few things related to these reforms that are highly likely to happen sooner rather than later:
1) In April, the 1.0% Up Front Mortgage Insurance Premium (UFMIP) will increase to 1.25%
2) In October, the $729,750 loan limit will be reduced to the National High Cost Area loan limit of $625,500.
3) When that happens, the FHA loan limit will also fall to $625,500.
There are a couple of ways the loan limit change will play out. On the one hand some buyers will rush to the exits, just like they did with the FTHB tax credit expiration. On the other hand, some buyers will want to "wait and see". I had one contact already wonder if it was in their better interests to wait until October to see what happens! Smart sellers with homes in the $850-$950k price range may put their homes on the market earlier than anticipated, trying to beat the loan limit change.
So what? So now you have to put 25% down, or take a private label Jumbo mortgage instead. Well, for one, lots of buyers don't have 25% down. With FHA loan limits dropping a great number of buyers will be taken out of the market - until prices come down or more cash is saved. Private label Jumbo Loans have about a 1.0% higher rate than Conforming loans. The underwriting for these loans is also considerably tighter than conforming loans. Ratios are lower, cash reserves higher, and credit requirements much more stringent than Fannie / Freddie guidelines.
As for the wind down of FN / FR, or higher down payment requirements for FHA? Who knows. It's still pretty far off. Already the interest groups are howling about how "all these changes will force us to become a nation of renters". OK, if that's the case, then perhaps Realtors need to start selling more rental properties than owner occupied homes. You've got to make lemonade when handed so many lemons.
The phrase "May you live in interesting times" has never been more appropriate to our market today.
My .02c
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