Big changes at are coming...

Currently, the FHA has a 'one size fits all' premium structure that charges borrowers 1.50 percent of the loan balance upfront and .50 percent annually regardless of their credit standing.

But the FHA felt this approach did not treat borrowers equitably and could put their insurance fund at risk.

That's why under their new guidelines scheduled to begin July 14, 2008, the FHA's upfront mortgage insurance premium will range from 1.25 percent to 2.25 percent with borrowers still needing to adhere to the FHA's strict underwriting criteria.

By charging different premiums, the FHA will be able to operate like most other insurance companies. This will allow them to serve more people without making taxpayers pick up the tab.

And with the modifications to FHASecure, also scheduled to begin July 14, 2008, they will be able to help homeowners struggling to keep up with their high-cost subprime adjustable rate mortgages who have missed up to three monthly mortgage payments over the past 12 months.

As an alternative to foreclosure, eligible borrowers will be able to refinance with the FHA and lenders can voluntarily write down the outstanding subprime mortgage principal balances.

Borrowers refinancing into FHA loans from the subprime market will be better off, even with slightly higher mortgage insurance premiums, because FHA insurance gives them access to substantially lower interest rates, and will lower their overall mortgage costs.

Stephen Katz

Katz Mortgage Team