From the Desk of David H. Stevens
Over the past week, Congress has taken quick action and passed H.R. 5981.The bill gives FHA the authority to adjust its annual mortgage insurance premium, yielding approximately $300 million per month in value to the FHA Mutual Mortgage Insurance Fund at a time when its reserves are perilously low.
As I have previously stated in my testimony before Congress, FHA will lower its upfront premium simultaneously with the increase to the annual premium¹. It is our intention that effective on September 7, 2010, FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 years². A Mortgagee Letter will be forthcoming once President Obama signs the bill into law, but with today’s passage of H.R. 5981 and our expedited implementation schedule, I wanted to immediately inform the industry of our plans so the lending community can begin preparing for the operational and system changes required to implement FHA’s new mortgage insurance premium structure on all new case numbers by September 7, 2010.
With this authority, FHA is in a better position to address the increased demands of the marketplace and return the MMI fund to congressionally mandated levels without disruption to the housing market.
What does this mean for your clients? There will be less buying/borrowing power available. For example, on a Sales Price of $250,000, the total payment would be $1,770.203 with the current MIP/Annual MI system. Under the new rules, that payment would be $1,824.393, a difference of $54.19.
While the UFMIP (Upfront Mortgage Insurance Premium) at 1% appears to be a great savings from the current 2.25%, it is offset by the Annual MI of .90, substantially higher than the current .55
Based on a statement released by Deputy Assistant Secretary Vicki Bott, the changes slated to be in effect September 7, 2010 have been extended to October 4, 2010 to allow the industry time needed to implement these changes.
¹The upfront and annual premium changes do not apply to the following FHA Programs: Title I, HECM, HOPE for Homeowners (H4H), Section 247 (Hawaiian Homelands), Section 248 (Indian Reservations), Section 223 (e) (declining neighborhoods), Section 238(c) (Military Impact areas in Georgia and New York).
² LTV’s <= 95% will increase to 85bps and LTV > 95% will increase to 90 bps
3Total Payment is based on an interest rate of 5%, property insurance of $75, property tax of $260.42