More FHA News, This Time It’s Good!
August 27th, 2008 Josh Lewis, CMPA big part of the recently passed housing bill was the so called “Modernization” of FHA. Many of the changes were minor but some had the potential of being game changers or even game breakers. The bill authorized the increase of upfront mortgage insurance premiums (UFMIP) to a maximum of 3%. Considering that they had previously only been 1.5%, that’s a huge jump. The good news is that after some deliberation HUD has settled on premiums well short of the 3% allowed. The new premiums announced are as follows:
Up Front MIP -
1.75% - Purchases and Qualifying Refinances
1.5% - Streamlined Refinances
3.0% - FHA Secure (Delinquent Borrowers)
HUD has also tweaked the annual mortgage insurance premium which is the monthly premium paid into the pool to cover FHA loan losses. Current premiums are .50% across the board. The new premiums are as follows:
Annual MIP -
0.55% - over 90% LTV > 15 year term
0.50% - less than or equal to 90% LTV > 15 year term
While this will add a little to the monthly payments for FHA borrowers, it’s not nearly as bad as it could have been. Let’s take a $350,000 FHA purchase as an example. The previous UFMIP at 1.5% would have amounted to $5250. The new premium jumps to $6125. At 6.5%, the increase adds $5.53 to the monthly payment. The .05% increase to the monthly premium adds an additional $15.20 for a total increase of $20.73 per month under the new guidelines.
There are 3 other changes included in the bill that will impact FHA buyers. As we previously discussed seller funded Downpayment Assistance Programs will be eliminated as of October 1. In addition, the required investment for FHA buyers is increasing from 3% to 3.5%, meaning an additional $1750 in sourced and seasoned funds in the example above. The last change is the one most beneficial to borrowers. The FHA loan limit is being increased in high cost areas to 115% of the area median price, not to exceed 150% of the Fannie/Freddie loan limits (currently $417,000). For areas like Los Angeles and Orange Counties this means that we will likely see FHA limits at $625,500 beginning next year. This is a slight decrease from the temporary limits of $729,750 set as part of the housing stimulus bill passed early this year.
Thanks to the increase in the FHA loan sizes and the death of subprime, FHA has jumped to 23% of all first mortgage loans funded last month. As recently as two years ago, only 1.8% of loans were insured by the FHA. With the increasing role that FHA financing is playing during the current housing and credit crisis, it’s critical that HUD not get caught up in tightening their standards beyond what is reasonable. FHA is and always has been a full documentation loan and as such has enjoyed relatively low default rates. The current (and the newly revised) insurance premiums will insure that FHA remains profitable for the foreseeable future and doesn’t become yet another drain on taxpayers, a la the coming nationalization of Fannie and Freddie.