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New FHA Fees To Start In September

by Peter G. Miller
August 5th, 2010

The HUD will shortly announce new FHA mortgage requirements that will start as of September 7th for FHA loans made on or after that date.

With the passage of H.R. 5981 by both the House and the Senate, a measure expected to be quickly signed by the President, the FHA will have the authority to change both the up-front mortgage insurance premium and the annual mortgage insurance premium

The changes for most borrowers will look like this:

___ The up-front mortgage insurance premium will be REDUCED from 2.25 percent to 1.00 percent. For a $200,000 FHA loan the upfront MIP will drop from $4,500 to $2,000.

___ The annual mortgage insurance premium will be INCREASED from .55 percent to .85 to .90 basis points. For an FHA loan with a balance of $200,000 the monthly fee will change from $1,100 divided by 12 ($91.67) to as much as $1,800 divided by 12 ($150).

“A Mortgagee Letter will be forthcoming once President Obama signs the bill into law,” says FHA Commissioner David H. Stevens, ” 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.”

HUD has the authority under FHA Reform Act of 2010 to raise up-front premiums to as much as 2.25 percent and annual premiums to a high of 1.55 percent. These changes were made to assure that the FHA would have the authority in hand if higher premiums were needed but there was no inclination to raise fees to such levels.

June Testimony

As we wrote in June, “there is some talk of raising the annual MIP — and LOWERING the up-front MIP at the same time.

“During congressional testimony in May, Commissioner Stevens offered this comment: “While HUD is moving to increase the upfront premium to 225 basis points we are ultimately planning to reduce that premium to 100 basis points, offset by a proposed increase in the annual premium to 85 basis points for loans with loan-to-value ratios (LTV) up to and including 95 percent and to 90 basis points for LTVs above 95 percent.”

$300 Million Per Month

The changes will significantly increase FHA premium receipts.

Stevens says 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.”

This is a bunch of money, an additional $3.6 billion per year to shore up FHA reserves.

The FHA loan program has been running in the black despite tough market conditions around the country. The new fee schedule will help bulk up FHA reserves in case things turn sour.

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