FHA Changes to Mortgage Insurance Premiums

U.S. Department of Housing and Urban Development (HUD) announced today that they are changing the amount they collect for mortgage insurance premiums.

Mortgage insurance premiums are collected and pooled in a fund and these moneys are used to offset losses on FHA loans that go into foreclosure. The idea is for the fund to have enough money to cover losses on any loans that default. Recently, with the high levels of foreclosures, losses have exceeded mortgage insurance premiums in the fund and this leaves HUD and FHA in a bad financial position and/or could lead to insolvency and an end to the program.

The changes begin with FHA loans started on or after October 4, 2010 and the new policy will reduce upfront mortgage insurance premiums (UFMIP) and increase monthly mortgage insurance premiums (MMIP). Right now FHA collects UFMIP of 2.25% and MMIP of .55% annually The new requirements are:

Upfront Mortgage Insurance Premiums
Mortgage Type / Upfront Premium Requirement
Purchase Money --1%
Refinance --1%

Monthly Mortgage Insurance Premiums for 30 Year Loans
Loan to Value / Annual Premium Requirement
95% or lower --.85% annually
95% or higher --.90% annually

What does this mean to a homebuyer putting 3.5% down and borrowing $100,000? Under the old rules they would pay UFMIP of $2,250 and monthly mortgage insurance of $45.83. Under the new rules UFMIP is reduced to $1,000 but MMIP is increased to $75.00 per month. That’s a $30 increase in the monthly payment.

It’s a mixed bag really and should not have a meaningful impact on getting borrowers approved for FHA financing. It will, however, improve and strengthen the FHA program and help to ensure we will have FHA loans available in the future!