byronslist.com

Another FHA cost increase is going into effect; for all loans locked after April 18, 2011, the monthly mortgage insurance premium will increase by .25%.

You may remember FHA loans have mortgage insurance in two parts – an upfront mortgage insurance premium (UFMIP) that is rolled into the loan amount and a monthly mortgage insurance premium.    

Currently the monthly MI premium is 90 basis points (bps) on loans with less than a 5% down payment and 85bps on loans with a down payment of 5% or greater.  After April 18^th this premium will change to 115bps and 110bps respectively.  Also effective with this change, there will now be MI on all FHA 15 year loans regardless of down payment.
 

What does this mean for your buyers?
 

 

With no change to the loan amount, rate or terms this MI increase raises a buyer’s monthly payment by $34.  Using an interest rate of 5%, this essentially reduces your client’s buying power by about $6200.  Buyers who are under contract have submitted a loan application can avoid the MI increase by having their case number ordered prior to April 18^th.
 

Why is HUD making this change now?
 

HUD’s  reasoning for the increase is: “Given the legislative mandate in section 202 of the National Housing Act for ensuring that FHA’s Mutual Mortgage Insurance Fund (MMIF) remains financially sound, it is imperative that the MMIF is further strengthened to ensure that FHA will continue its historic role of providing a home financing vehicle during periods of economic volatility and its mission of helping underserved borrowers.” 

Make no mistake, the FHA portfolio is performing quite well and it has a high credit quality.  Since the MMIF isn’t in any current danger, one popular opinion is that these changes are an effort to wean the housing market off government insured mortgages and back to private mortgage insurance companies. 

Please share this change and effective date with your FHA clients.  This coupled with rising rates is an excellent reason to get under contract and make loan application now.