Proposed change to FHA MIP scheduled for change Jan 1, 2008.// Comment Period Ended 10/22/2007

By
Mortgage and Lending NMLS142066/250013

Update  --  Please Read

HUD ML 2008-22 Important Read - MIP CHANGES

You may wish to read this Mortage Letter. Everyone has heard that there is a moritorium on the FHA Risk Based Pricing that were to take effect 10/1/2008.    HUD today issued a the ML that confirms this, but at the same time they increased the Upfront MIP from 1.50 to 1.75.    They also increased the Monthly MIP from .50% to .55% for Loan to values above 95% LTV.  

Here is a link to the entire Mortgage Letter.  http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-22ml.doc 

If any Realtor has any buyers that wish to take advantage of the Lower MIP premiums, you need to make sure they have an accepted contract and the lender has issued a FHA case number. 

____________________________________________________________________________________

Click here for information regarding Ohio Home Loans or Ohio 203k Loans 

Come on Active Rainers

Please make your comments to HUD regarding this Proposal.   And let others know what you are saying by leaving the post here. 

Below is the proposed change to FHA MIP Premiums.  

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-5171-N-01]
Federal Housing Administration (FHA)
Single Family Mortgage Insurance:
Announcement of Planned Implementation of Risk-Based Premiums

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing Commissioner, HUD.

ACTION: Notice.

SUMMARY: This notice applies to FHA single family mortgage insurance programs. This notice announces FHA's planned implementation of risk-based premiums, which are designed for mortgage lenders to offer borrowers an FHA-insured product that provides a range of mortgage insurance premium pricing, based on the risk the insurance contract represents.

DATES: Comment Due Date: October 22,2007.

ADDRESSES: Interested persons are invited to submit comments regarding this notice to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410-0500.

Communications should refer to the above docket number and title.Comment by Mail. Please note that due to security measures at all federal agencies, submission of comments by mail often results in delayed delivery.Electronic Submission of Comments.HUD now accepts comments electronically, which interested persons may now submit through the FederaleRulemaking Portal at http://www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make them immediately available for public viewing. Commenters should follow the instructions provided at http://www.regulations.gov to submit comments electronically. No Facsimile Comments. Facsimile (FAX) comments are not acceptable. In all cases, communications must refer to the docket number and title.

Public Inspection of Public

Comments. All comments and communications submitted will be available, without revision, for inspection and downloading at http:// www.regulations.gov. Comments are also available for public inspection and copying between 8 a.m. and 5 p.m. weekdays at the Regulations Division. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the comments by calling the Regulations Division at (202) 708-3055 (this is not a toll-free number).

FOR FURTHER INFORMATION CONTACT:

Margaret Burns, Director, Office of Single Family Program Development,
Department of Housing and Urban
Development, 451 Seventh Street, SW.,
Washington, DC 20410;
telephone (202)708-2121 (this is not a toll-free number). Persons with hearing or speech impairments may access this number through TTY by calling the tollfree Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Risk-Based Premiums

This notice announces HUD's plan to implement risk-based premiums for FHA loans for which case numbers have been assigned on or after January 1, 2008. Section 203(c)(2) of the National Housing Act (12 U.S.C. 1709(c)(2)) establishes mortgage insurance premiums for most FHA single family programs. Such upfront and annual insurance premiums are set at levels not to exceed 2.25 percent and 0.50 percent (0.55 percent for mortgages involving an original principal obligation that is greater than 95 percent of the appraised value of the property), respectively, with a discount available on the upfront premiums for mortgagors who are first time home buyers and who successfully complete pre-purchase homeownership counseling approved by the Secretary. By offering a range of premiums based on risk, FHA will be able to offer options to mortgagees serving borrowers who were previously underserved, or not served, by the conventional marketplace. Alternatively, FHA will also be able to offer options to mortgagees serving those borrowers wishing to lower their premiums by, for example, increasing their down payment or by improving their credit scores. A range of premiums based on risk will also ensure the future financial soundness of FHA programs that are obligations of the Mutual Mortgage Insurance Fund (MMIF). Under risk based premiums, however, no qualified borrower will be charged by the mortgage lender in excess of the current statutory upfront and annual mortgage insurance premium limits. Additionally, this notice, when issued in final, will replace FHA's Mortgagee Letter 00-38, which identifies the current mortgage insurance premiums for FHA's single family programs. Risk-based premiums will utilize the following schedule for upfront mortgage insurance premium rates:

 

FHA SINGLE FAMILY MORTGAGE INSURANCE UPFRONT MORTGAGE INSURANCE PREMIUMS
EFFECTIVE AS OF JANUARY 1, 2008
[All premiums are specified in basis points (0.01%)]

 

Minimum
Downpayment
(%)(a)

Decision Credit Score

Funds from Borrower or a Relative   850-680 679-640 639-600 599-560  559-500 499-300   None
10 75  100 125 150 175  175   200
5 100 125 150 175 200 ----- 225
3 125 150 175 200 225 ----- -----
Other Sources of Funds 3 175 200 225(b) ----- ----- ----- -----
a. Premiums are based on two categories of sources of funds: (1) The borrower's own funds or gifts from relatives and (2) any other acceptable source. See HUD Handbook 4155.1 for guidance on acceptable sources of funds.
b. A minimum decision credit score of 620 is required when down payment funds come from a source other than the borrower or a relative of the borrower.

Notes:

1. Annual premium rates are: 50 basis points for loans with 5 and 10 percent down payments; 55 basis points for loans with 3 percent down payments; and 25 basis points for all loans with amortization terms of 15 years or less.

2. Down payment percentage is determined by the base loan-to-value ratio (LTV). The ‘‘base LTV'' is calculated by: (1) Dividing the base mortgage amount by the lesser of the sales price or appraised value of the property (for refinances, the base mortgage is divided by the appraised value of the property); (2) subtracting the result from 1 (one); and (3) multiplying by 100. ‘‘Base mortgage amount'' is defined as the mortgage amount prior to adding any financed closing costs or upfront mortgage insurance.

3. Eligibility for the mortgage insurance premiums listed in the chart above is based on an applicant's decision credit score (FICO). A ‘‘decision credit score'' is determined for each applicant according to the following guidelines: when three scores are available (one from each repository), the median (middle) value is used; when only two are available, the lesser of the two is chosen; when only one is available, then that score is used. If more than one individual is applying for the same mortgage, the lender should determine the decision credit score for each individual borrower and then average them to determine the final decision credit score for the application. That application ‘‘decision'' credit score is then used to underwrite and determine if the mortgage is considered an acceptable risk.

4. Except as provided below, eligibility for these insurance premiums is dependent upon borrower acceptance by TOTAL (Technology Open to Approved Lenders). Therefore, all borrowers with valid credit scores must be scored by TOTAL.

5. Borrowers not scored by TOTAL or with insufficient trade lines to generate credit bureau scores are considered as ‘‘none'' in the premium chart and are priced accordingly. Borrowers falling into cells with no premium price shown are not eligible for FHA-insured financing.

6. If TOTAL refers a loan for manual underwriting and the underwriter deems that there are sufficient compensating factors to create an acceptable risk to FHA, then the upfront insurance premium charge will be as shown on the premium chart.

7. These premiums apply to all purchase loans and to fully underwritten (non-streamline) refinance loans. Cash-out refinance loans must meet a minimum 5 percent equity requirement, based on the appraised value of the property.

8. Streamline refinance of an existing FHA loan for which a case number was assigned prior to January 1, 2008, will have an upfront premium of 100 basis points and an annual premium of 50 basis points.

9. First-time homebuyers who would otherwise pay an upfront premium of 225 basis points, but who complete pre-purchase homeownership counseling acceptable to the Secretary, will pay an upfront premium of no more than 200 basis points.

II. Solicitation of Public Comments

FHA welcomes comments on the risk based premiums for a period of 30 days. The risk-based premiums are based on FHA insurance eligibility requirements as they exist at the time of publication of this notice. FHA's proposed rule on down payment assistance, if issued in final, would affect the risk-based premiums proposal contained in this notice. Any changes made to the risk-based premiums in response to public comment will be announced through publication of a subsequent notice in the Federal Register.

III. Findings and Certifications

Environmental Review

A Finding of No Significant Impact is not required for this notice. Under 24 CFR 50.19(b)(6), the subject matter of this notice is categorically excluded from the requirements of the National Environmental Policy Act (42 U.S.C. 4332 et seq.). Dated: September 13, 2007.

Brian D. Montgomery,

Assistant Secretary for Housing-Federal
Housing Commissioner.
[FR Doc. 07-4651 Filed 9-17-07; 10:16 am]
BILLING CODE 4210-67-P

To read comments to on this proposal go to
http://www.regulations.gov/fdmspublic/component/main?main=DocketDetail&d=HUD-2007-0133

Come on Active Rainers

Please make your comments to HUD regarding this Proposal.   And let others know what you are saying by leaving the post here. 

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Rainmaker
290,845
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing

This is important information.  Are there any websites out there that truly translate the legalese.

If I'm reading this right, if these changes are implemented it means that FHA will now be credit score based AND that down payment assistance programs will be eliminated?  Tim, can you comment on this and help clarify it for me?

 thanks

Sep 27, 2007 06:34 AM #5
Rainmaker
225,408
Tim Bradford
Cleveland, OH
NMLS 250013

Kate, 

As far as making FHA credit score based, I agree on two counts.   First the upfront premiums will be adjusted based upon downpayment and also credit scores.   That is not necessarily bad and that is why it is called risked base MIP.   As far as eliminating the "Down Payment Assistance" Programs, I believe FHA plans on offering the 100% financing, so the last line  

Other Sources of Funds 3175200225(b)--------------------

would change to

100% Financing0175200225(b)--------------------

That as far as being Risk based is not bad and conforms to the principle of the proposal. 

The significance or "Credit Score Based" is the areas marked as "------" would not be eligible for FHA Financing.   

This is only my opinion of where they are going.    I say pros and cons.   The point of the post was two fold. First to let agents know of the proposal, let agents express their opinions and lastly encourage any buyers to act before the proposal is enacted.  

Sep 27, 2007 08:44 AM #6
Rainmaker
290,845
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing

Tim, thank your for clarifying.  If I'm reading this correctly this would mean that clients with credit scores below 600 would NOT be elegible for additional gifting funds? 

b. A minimum decision credit score of 620 is required when down payment funds come from a source other than the borrower or a relative of the borrower.  

This is counter-intuitive to me.  It seems to me that many clients who use FHA don't have a lot of credit to begin with.  I'm confused?  If the FICO scoring model were fair it would be one thing but it's not.  What am I missing?

In looking at the chart below, what does the 75 mean under the 680 - 850 score, 100 under 679 - 640 etc. mean?  Also help me understand what the 200 next to other sources of funds means.

Minimum
Downpayment
(%)(a)

Decision Credit Score

Funds from Borrower or a Relative 850-680679-640 639-600599-560  559-500499-300  None
1075 100 125150175  175  200
5100125150175200-----225
3125150175200225----------
Other Sources of Funds 3175200225(b)--------------------
Sep 27, 2007 11:09 AM #7
Rainmaker
225,408
Tim Bradford
Cleveland, OH
NMLS 250013

Kate,

Remember this is only the proposal.  

Let me approach this first.   In looking at the chart below, what does the 75 mean under the 680 - 850 score, 100 under 679 - 640 etc. mean?  Also help me understand what the 200 next to other sources of funds means.  Currently the base number for FHA loans is the borrower pays an Upfront Premium of 1.50% that can be financed.  With the down payment and credit scores you use the table.    So with a 680-850 Score the borrowers UpFront financable premium would be .75% (reward for downpayment and higher score)  The 679-640 would have an upfront premium of 1.00%  so on and so on.    Hope tht explains that. 

Regarding clients with credit scores below 600 would NOT be elegible for additional gifting funds?  That is the way I read it.  By the way, I believe the "Other Source of Funds" will be changed to 100% Financing.  HUD has been trying to get away from a number of Charity Grant Programs that are really seller funded.  That part I do not object to because the processing fees that range between 295-495 would be eliminated.  My problem like yours is that no option exists for a Manual Underwrite by the Underwriter.   I have seen too many cases where credit scores are not a true reading of a persons credit.   (my opinion)  Sometimes incorrect information appears and paid accounts are shown as outstanding.   I believe the Manual Underwrite is necessary at ever level.  

Hope I answerred all your questions.  and it is not as clear as mud. 

Sep 27, 2007 11:31 AM #8
Rainmaker
290,845
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing
Tim, yes you did answer my questions.  It will interesting to see how this effects the My Community Down Payment Assistance Programs.  As I'm reading these FHA changes it seems to me that the private sector has a better solution for homebuyers.  So much for FHA being the "New Sub-Prime"  I truly don't understand these changes.
Sep 30, 2007 10:19 PM #9
Rainer
4,086
Candi Kinney
Tennessee Valley Home Loans - Tullahoma, TN
What a great & timely post, thanks so much!
Oct 10, 2007 04:57 AM #10
Rainer
34,635
Carl Pruitt
FHA Loan Advice - Buford, GA
http://FHALoanAdvice.com
The thing that bothers me most so far is that it appears based on the schedule to limit borrowers with no credit score to 95LTV! There are a lot of no credit score young couples that would be a much better credit risk than the borrower with a 501 credit score that gets 97LTV!
Oct 10, 2007 02:25 PM #11
Rainer
34,635
Carl Pruitt
FHA Loan Advice - Buford, GA
http://FHALoanAdvice.com

In my opinion, with the latest FNMA add-ons to the interest rate on MyCommunity Mortgages and the significant increase in mortgage insurance costs on those loans, combined with the fact that they will now no longer be allowed below a 575 credit score at all, FHA will still be a better program that is cheaper for the borrower provided Congress as expected changes the max LTV to 100 and fixes a couple of issues with the MIP.

Oct 10, 2007 02:30 PM #12
Rainmaker
120,851
Richard Sweum
1st Security Bank - Everett, WA
"Government help!"  It's an oxymoron.  Unfortunately, politicians have too much influence in this loan program, which means that FHA modifications are good for soundbites to make the public think that they actually are doing something to help homeowners/buyers.  I am glad that FHA loans are there, and I do believe that they are better than MCM's for lower scredit score borrowers, but the threshholds for qualification are too high.  Especially when it comes to length of emp.
Oct 12, 2007 03:01 AM #13
Anonymous
Carl Pruitt
I agree that the length of employment does seem a bit harsh, but a stable employment history is one of the pillars of why FHA works at all. They are already giving loans to people who haven't managed their credit well for one reason or another. At least they can hang their hat on a stable source of income. I know this can have the effect of ruling out some good borrowers, but the vast majority of people with a shorter work history really should be getting some work experience under their belt and waiting to buy a house.
Oct 12, 2007 03:09 AM #14
Rainmaker
225,408
Tim Bradford
Cleveland, OH
NMLS 250013

Carl thanks for supporting FHA with Rich Sweum's Comments.    Am I missing something regarding Employment.   Both MCM and FHA do require verification of a Stable Income.    Yes both loans require a two year history of employment, but education does count towards that, so I have done many loans that just graduated College (or Even Highschool) and were buying a home.    As long as I can verify the stability of their income.  (excluding commission and Bonus Income, because predictions can not be used.) 

Let me know If I am missing a point in the post.

Oct 12, 2007 03:33 AM #15
Rainer
34,635
Carl Pruitt
FHA Loan Advice - Buford, GA
http://FHALoanAdvice.com
Just another example of how FHA is more of a common sense loan instead of just blindly following a guideline the way many of the subprime loans have. I have also used the education exception in many instances. I should also mention that there is an exception for those who have taken time off to raise a child, look after a parent etc. If they can prove their work history prior to the break and have been back at work for 6 months, it's just as good as if they have a recent 2 year work history.
Oct 12, 2007 04:20 AM #16
Rainer
2,513
y y
/LSONHC';/.c - Denver, CO

This is good information.   I had heard of the proposal, but wasn't aware that the decision was right around the corner.

 

Thanks for posting this, Tim 

Nov 18, 2007 11:32 AM #17
Anonymous
Dean Wolfe Mortgage Banker
This proposal seems unfair to the NO FICO score individuals who have operated on a cash basis and have the required non traditional credit letters required for FHA financing. They are a much better credit risk than a 559 to 500 credit score. I have originated and funded FHA loans for 12 years and have tracked the defaults through neighborhood watch. I feel it is unfair to put those just beginning under the 5% downpayment rule and exclude them from "other sources of funds". Any news as to how this final rule is going to shake out. or what we can do to fight it. I found out about this after the public comment period ended?
Dec 01, 2007 10:48 AM #18
Rainmaker
225,408
Tim Bradford
Cleveland, OH
NMLS 250013

Dean, 

My concerns are similar to yours.  I know a number of comments addressed this issue.   As of yet, I have not seen the FINAL Rule.   Based upon past rules, any change takes 30 days after it is published.   For this reason things appear to be status quo until that occurs.  Above this issue my concern is for HR 1852 ( http://www.govtrack.us/congress/bill.xpd?bill=h110-1852 ) This allows for 100% Financing.    

Dec 03, 2007 12:14 AM #19
Rainer
10,964
Ronald Miller
Monarch Mortgage - Fredericksburg, VA

Tim,

Great Post!! Being a big fan of FHA loans I will definitely monitor the progress on this proposal and submit my comments to HUD as well.Have a good one.

Dec 03, 2007 12:59 AM #20
Rainer
34,635
Carl Pruitt
FHA Loan Advice - Buford, GA
http://FHALoanAdvice.com
Senator Dole had been holding up the FHA bill in the Senate until an amendment was added to it which delayed the implementation of these new risk based MIP guidelines for a year.
Dec 05, 2007 01:29 PM #21
Rainmaker
225,408
Tim Bradford
Cleveland, OH
NMLS 250013

Carl,

Thank you for that information.  If you have a post to that information, please send it to me. 

Dec 05, 2007 10:46 PM #22
Rainer
34,635
Carl Pruitt
FHA Loan Advice - Buford, GA
http://FHALoanAdvice.com

Some additional news on the risk based MIP: As everyone knows by now the Senate version of the FHA reform bill included provisions that delayed implementation of risk based MIP for a year. However, since the conference committee has not reconciled the House and Senate bills, this could not be passed before scheduled implementation.

This morning I was told by a knowledgeable source in management at a prominent FHA lender that HUD had therefore decided to delay implementation of the risk based MIP until action was taken on the FHA Reform Bill and it would not be taking effect January 1. I have received no official confirmation of that yet.

Here is a good FAQ on the rules that may or may not be scheduled to take effect on Jan. 1. One of the interesting elements is that they intend to use the "average credit score" to determine MIP rates.

http://www.fha.gov/about/riskbasedfaq.cfm 

 

Dec 26, 2007 05:25 PM #23
Anonymous
tonybologna
I personally think HUD wants the DPA's gone because of the amount of claims they have paid on this product and no matter how many times  the DPA's win in federal court they were determined to find a way to offset the claims -they are an insurance company and will always act like one.  So they will just make it financially unattractive which will accomplish exactly the same thing. I'm also certain that some actuary has run the numbers and when borrower's fico scores are >620 the majority pay the loan as opposed to <620. 
Mar 12, 2008 02:33 AM #24
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Tim Bradford

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