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FHA Continues to Bail Itself Out on the Shoulders of New Borrowers

FHA Loans Pic

The Federal Housing Administration (FHA) has raised the Annual Mortgage Insurance Premiums again. They’ve done this to help strengthen the program and to compensate for the poor performance of loans written in the days of seller-funded downpayment assistance. But who’s paying for this bailout? Unfortunately, it’s new FHA homebuyers and all those refinancing with an FHA loan who are paying for the bailout with higher premiums.

Below I have highlighted the changes to the Annual Mortgage Insurance Premiums, as well as the recent changes to credit guides that pertain to manual underwriting.

FHA Mortgage Insurance Premiums Changes

Mortgagee Letter 2013-04 announces guideline changes for mortgage insurance premiums. Here are the things you need to know about these changes:

1. Effective for case numbers assigned on or after April 1, 2013 the chart below shows the new annual MIP for 30 year loans.

►130 bps for Loan amounts = $625,500 and = 95.00 percent LTV

►135 bps for Loan amounts = $625,500 and > 95.00 percent LTV

►150 bps for Loan amounts > $625,500 and = 95.00 percent LTV

►155 bps for Loan amounts > $625,500 and > 95.00 percent LTV

2. Effective for case numbers assigned on or after April 1, 2013 the chart below shows the new annual MIP for 15-year loans.

►45 bps for Loan amounts = $625,500 and 78.01 percent - 90.00 percent LTV

►70 bps for Loan amounts = $625,500 and > 90.00 percent LTV

►70 bps for Loan amounts > $625,500 and 78.01 percent - 90.00 percent LTV

►95 bps for Loan amounts > $625,500 and > 90.00 percent LTV

3. Annual MIP changes do not apply to streamline refinance transactions of existing FHA loans that were endorsed on or before May 31, 2009.

4. Effective for case numbers assigned on or after June 3, 2013, all loan amounts with = 78.00 percent LTV will have an annual MIP of 45 bps.

5. Effective for case numbers assigned on or after June 3, 2013:

►The annual MIP for 30 year loans with < 90 percent LTV will remain in effect for the 11 years.

►The annual MIP for 30 year loans with > 90 percent LTV will remain in effect for the term of the loan.

►The annual MIP for 15 year loans with < 90 percent LTV will remain in effect for 11 years.

►The annual MIP for 15 year loans with > 90 percent LTV will remain in effect for the term of the loan.

FHA Changes to Manual Underwriting Guides

Mortgagee Letter 2013-05 revises the guides for manually underwritten loans.

Here are the 4 things you need to know about this update:

1. These changes are effective for case numbers assigned on or after April 1, 2013.

2. Manual underwriting is required for loans with a credit score less than 620 AND a debt-to-income ratio greater than 43 percent.

3. Any compensating factor used to justify approval of a loan that exceeds ratios must also be supported by documentation.

4. Energy Efficient Mortgages may still be approved with a debt-to-income ratio up to 45% without compensating factors.

The future of FHA Looks Bright

Based on the FHA’s 2012 audit, it is expected that the Mutual Mortgage Insurance fund will become very strong in subsequent years. My hope is that once the desired stability is achieved, the mortgage insurance premiums—both the Upfront and Annual MIP—will be decreased, as has been done in the past. But for now, current FHA borrowers will bear the burden of the bailout.

Go FHA!

Jeff Mifsud is founder of Michigan-based Mortgage Seminars LLC, a former FHA underwriter with 15-plus years of experience originating FHA loans, an FHA expert for LoanToolbox.com and creator of The FHA Originator, a monthly FHA newsletter. Jeff may be reached by phone at (248) 403-8181 or visit www.MortgageSeminars.com.

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