FHA Introducing Risk-Based Pricing on 7/14/08

This was sent to me by our TB&W Account Executive:

"FHA Introducing Risk-Based Pricing

The Federal Housing Administration will start charging upfront mortgage insurance premiums based on the borrower's credit score and downpayment starting July 14, according to the Department of Housing and Urban Development. Upfront premiums paid at closing will range from 1.25% to 2.25% under the new pricing schedule that will apply to all FHA loans. Currently all FHA borrowers pay a 1.5% upfront premium regardless of risk. By charging slightly higher premiums based on credit risk, HUD expects to create a more financially sound FHA program and reach more borrowers struggling to keep up with their payments on high-cost subprime mortgages. Risk-based pricing will also be used for refinancing delinquent borrowers under the FHA Secure program starting in July. HUD is expanding the FHA Secure program so that borrowers who have missed two or three payments in the previous 12 months can be refinanced into FHA-insured mortgages. The risk-based pricing notice and a mortgagee letter with the underwriting standards for the expanded FHA Secure program are posted on the FHA website, which can be found at http://www.fha.gov. <http://www.fha.gov./>"

This is VERY noteworthy & will have an impact on many FHA loans in the near future.  It was only a matter of time before FHA decided to do this since it has been standard on most conventional loans for a while now.

This is probably not a bad thing.  Customers with lesser credit should reasonably expect to pay a higher interest rate since they are a higher risk.

Nathan