Here's a summary (more details below):
FHA Comparison – Loan terms over 15 years:
Current/Prior to 4-1-12 On/After 4-1-12
Purchase Price $175,000 $175,000
Minimum Down (3.5%) $ 6,125 $ 6,125
Base Loan $168,875 $168,875
Loan with financed MI $170,564 $171,830
Monthly P/I at 3.750% $ 789.91 $ 795.77
Monthly MI $ 163.46 $ 178.99
Total PI/MI $ 953.37 $ 974.76
Total payment increase $ 21.39
What affect will this have on borrower qualification? To qualify for the same loan as above a borrower will need an additional $30 per month in income, assuming a 30% tax bracket.
The update notice:
The Temporary Payroll Tax Cut Continuation Act of 2011 requires FHA to increase the annual MIP it collects by 0.10 percent (now 1.15% for loan terms >15 years). This change is effective for case numbers assigned on or after April 1, 2012. FHA is also exercising its statutory authority to add an additional 0.25 percent to mortgages exceeding $625,500. This change is effective for case numbers assigned on or after June 1, 2012.
The UFMIP will be increased from 1 percent to 1.75 percent of the base loan amount. This increase applies regardless of the amortization term or LTV ratio. FHA will continue to permit financing of this charge into the mortgage. This change is effective for case numbers assigned on or after April 1, 2012.
Your takeaways:
- Effective for case numbers on/after 4-1-12.
- Sales contract dates, all loan documents and FHA case # must be dated on/before 3-31-12.
As anticipated, HUD announced that mortgages backed by the FHA will become more expensive. Once again, future borrowers are paying for the problems of previous borrowers - the money will be used to bolster the sagging reserves in the FHA mortgage insurance premium fund. Hopefully any more claims that FHA is "fine" and doesn't need more capital will stop in the near future - it does need more capital. The increase in insurance premiums would bring in about $1.25 billion during the rest of 2012 and through September 2013 which will be added to about $1 billion FHA is receiving from the servicer settlement. Every little billion helps...
First, remember that the agency does not make loans, or buy loans, but instead insures mortgages that meet its guidelines. Mortgage insurance, similar to a guaranty fee, protects one party from the risks of the borrower becoming delinquent of going into foreclosure. With all this talk about FHA and compare ratios, and the removal of the streamline product from the calculations, it might be helpful to know where to find it. Anyone wishing to check it out for themselves can do so here. Click on the "Early Warnings" menu, Single Lender or general, and go from there. (And no, I don't know specific lender ID's.) If you want to see compare ratios excluding streamline refinances, they can be found through the "Analysis Menu."
FHA's guidelines are very lenient, although most lenders have overlays in order to bolster the product, and claim that borrowers with credit scores of 580 or more can put down as little as 3.5 percent. The FHA will increase its annual mortgage insurance premium by 0.10 of a percentage point for loans under $625,500, which would now cost 1.25 percent of the loan amount, up from 1.15 percent, on 4/1. And starting on 6/1 the premium for larger loans would rise more, or by 0.35 of a percentage point, bringing the total premium to 1.5 percent. This annual premium is broken down in monthly payments. The upfront mortgage premium is also increasing by 0.75 of a percentage point, bringing the premium to 1.75 percent of the loan amount, which can be financed/added into the mortgage.
I have not heard any details yet on the FHA's possible plans on some softening of the streamlined refi rules or charges for borrowers refinancing pre-Oct 2010 loans that were made under much lower annual MIPs. The expectation is that the FHA will grandfather all or a portion of the old, lower MIP. Certainly investors in Ginnie Mae MBS's are concerned about how much easing that HUD will do on streamlined refis.
As noted recently, Fannie & Freddie's big book of problem loans came from 2005-2008, but the FHA wasn't insuring many loans in the bubble years. The FHA's big exposure has come with its gain in market share after the demise of the subprime lending industry (remember LO's saying FHA loans are "the new subprime"?) And though recent production is "better" quality, they're still FHA loans, which means cum default rates well above 5%, which means that the FHA fund will continue to face financial pressures for the next several years.
Put another way, what the does the change mean to borrowers? In the future, the two tiers of FHA MI change. Starting April 1 the up-front MI for loans up $729,750 will be 1.75% of loan amount (up from 1%). The annual MI for loans up to $729,750 will be 1.2% of loan amount if the down payment is 5% or more, or 1.25% of loan amount if the down payment is less than 5% starting 4/1. And the annual MI for loans $625,501 to 729,750 will be 1.45% of loan amount if the down payment is 5% or more, or 1.5% of loan amount if the down payment is less than 5% starting June 1. Borrowers had better pay attention to when they're in contract!
Until next time....
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