FHA switches to Risk Based Pricing & variable up front Mortgage Insurance Premiums (MIP)

The Federal Housing Administration (FHA) is moving ahead with risk-based pricing to refinance more subprime borrowers into safer and less expensive FHA-insured loans and attract more creditworthy borrowers.

It's the first time in FHA's 74-year history they are going to base premiums on risk according to FHA commissioner Brian Montgomer.  Risk based pricing (RBP) goes into effect July 14, 2008.

Currently all FHA borrowers pay a 1.5% upfront (MIP) premium regardless of risk. The new RBP structure that goes into effect July 14, raises the upfront insurance premium by 75 basis points to 2.25% for the riskiest FHA borrows however, borrowers with high credit scores & 10% equity or down payment will get a break and pay a lower 1.25% upfront premium.

FHA Secure - related news:

This RBP structure also will be used with the expanded FHA Secure program the Department of Housing and Urban Development announced on April 9. The expanded FHA Secure program, which also goes into effect July 14, is designed to help refinance delinquent borrowers with underwater mortgages.

Borrowers who have missed three payments in the past 12 months can qualify for an FHA refinancing if the servicer writes down the first mortgage to a 90% loan-to-value ratio. Borrowers that have missed two payments could qualify for an FHA 97% LTV loan. These risky borrowers would pay the new (higher) 2.25% upfront premium.

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