HUD finally decided to make some changes in regards to mortgage insurance premiums and their most risky loans. They are trying to maintain their solvency and stay afloat with the large quantity of riskier loans they have been insuring with the demise of the Subprime market. For the first time, Hud is implementing risk based pricing based off of a borrowers FICO score. This is a great thing trust me. If you look at the bottom line (cost to the client) it really isn't making that much of an impact even for the highest of risk borrower. If the same client could get a subprime loan today, instead of spending a few dollars more a month on FHA mortgage insurance, they would be more than likely forced into a subprime loan where they would have to settle for a much higher adjustable rate which would cost them significantly more money in the long run. Not to mention the ticking 2 or 3 year time bomb once the note rate adjusted....

Effective with new FHA case number assignments on or after July 14, 2008, FHA will implement risk-based premiums on one- to four-unit single family mortgages. The premium matrix is shown below, replacing the premium matrix in Mortgagee Letter 00-38, which identifies the current mortgage insurance premiums for FHA’s single family programs.

The premium grid is based solely on the prospective borrower’s credit bureau score and the loan-to-value ratio; both are defined below. Future Changes to the Risk-based Premium Schedule

It is FHA’s intent to make any subsequent changes to the risk-based premium schedule only on an annual basis and make them effective at the beginning of the fiscal year. FHA’s fiscal year begins October 1 and ends September 30.

Highlights Regarding FHA’s Risk-Based Premiums

• UFMIP will range from 1.25 percent of the loan amount for lower-risk borrowers to 2.25 percent for riskier borrowers.
• No borrower who qualifies for a FHA-insured mortgage will pay more than 2.25 percent on the upfront mortgage insurance premium (UFMIP) and 55 basis points for the annual premium.
• Borrowers with credit bureau scores must be risk-classified by FHA’s TOTAL Mortgage Scorecard.
• Those in risk categories without a premium shown are not eligible for FHA-insured mortgage financing.
• Borrowers without credit bureau scores will need to be manually underwritten and deemed as eligible based on criteria described in Mortgagee Letter 2008-11; the mortgage insurance premium will be determined by the loan-to-value ratio for the non-traditional column in the premium schedule.