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Important New Changes - FHA to increase the FHA monthly mortgage insurance (MMI)

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

February 15, 2011 12:09 PM

FHA update on annual mortgage insurance aka monthly mortgage insurance

Pull on the chin straps, because FHA has raised the annual mortgage insurance premiums which is known as the FHA monthly mortgage insurance. These changes are mentioned in Mortgagee Letter 11-10 and become effective on or after April 18th, 2011. The new change is 25 bps.

Now before many of you flip your top per se, keep in mind that Fannie Mae has a pricing change that goes into effect on April 1st, 2011. Pricing Hikes for Conventional Loans in April 2011 And there is talk about conventional loans requiring 10 percent down, not 5 percent down. Will keep you posted on that topic if and when it becomes official. But there seems to be no foreseable changes for FHA loans and the minimum down payment of 3.5 percent.

Why the changes? HUD wants to strengthen the FHA's Mutual Mortgage Insurance Fund, known as the MMIF. They want to see the fund financially sound. Also, there is no change to the Upfront Mortgage Insurance Premium of 1 percent.

Old verse New Monthly Mortgage Insurance Changes

FHA monthly mortgage insurance chart

This chart is from Mortgagee Letter 11-10 - Annual Mortgage Insurance Premium Changes -

As you can see by the red arrow, indicating that this goes into effect on April 18th, not April 4th. HUD must have revised the date after they did the charts. So what does this all mean to those refinancing or buying new homes with a FHA mortgage?

FHA monthly mortgage insurance example of new changes for MMI

This is based on a $250,000 sales price and the end result is that it would cost the buyer $50.26 more in their total mortgage payment. You can also look at it from the flip side when qualifying buyers. This could lower the new buyers purchasing power by about $9,000. Meaning, instead of the $250,000 purchase price in the example, they can now afford a $241,000 home.

This new change is for your primary 1 to 4 unit properties. This change does not affect Title 1 loans, the HECM loan (reverse mortgages - which I am writing about tomorrow), the HOPE loan, and a few other types of FHA loans. This can also be found in the new FHA mortgagee letter 11-10.

There are also new changes to how one would have to request a FHA case number, cancellations of FHA case numbers, and a few other issues. These changes can also be found in the new FHA mortgagee letter 11-10.

Here is a quick breakdown of different purchase prices just to give you an idea on how it will change the monthly payment.

FHA monthly mortgage insurance examples of different purchase prices

REBLOGGING - The reblog button is still not working.. for those that want to post this post on your page, you have my permission, as long as you give me credit and link backed to my main site, The FHA Expert - For those of you that have outside sites, you can go to this page and copy this post, and paste it to your site. - FHA changes the monthly mortgage insurance - again, please giving me credit and a link back to the FHA Expert. Or if you want to copy the article to send in an e-mail blast.. thanks

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Steve, Joel & Steve A. Chain

Chain Real Estate Investments & Mortgage, Steve & Joel Chain - Cottonwood, CA

Jeff,

Your post really takes the mystery out of the new FHA MI increase.

Hope you're having a great week,

Steve

Feb 16, 2011 03:43 AM

Chris Olsen

Olsen Ziegler Realty - Cleveland, OH

Broker Owner Cleveland Ohio Real Estate

Hi Jeff -- Thanks for keeping us updated. I wonder if with the projected rise of interest rates, plus this, if buyers will start downsiziing their expectations as a result, tamping down asking prices as well. Time will tell.

Feb 16, 2011 09:51 AM

Angela Clark

Tony Clark REALTORS - Owensboro, KY

CRS, Realtor, Broker

Jeff, Dito everyone's comments. You make this so clear and simple to understand! And in this complex world, clear and simple is refreshing! Thanks again.

Feb 16, 2011 09:52 AM

Christine Donovan

Donovan Blatt Realty - Costa Mesa, CA

Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Jeff - Thank you for making this so easy to understand. It looks like loans are just going to be more expensive.

Feb 16, 2011 10:36 AM

Karen Pannell

Real Living / Home Realty - Owensboro, KY

Owensboro KY Real Estate -270-903-2167 Homes, Cond

Thanks for this update. I can see your really are the expert! Best wishes for 2011!

Feb 16, 2011 10:50 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

STEVE... CHRIS... . ANGELA... . CHRISTINE... & KAREN.... just wanted to thank you all for your kind words and for the compliments...

@ CHRIS... expensive? One could look at it this way. I look at it as if rates were in the 7's, people's payments would be higher and that you would be buying less of a house.

Everyone... my take on this? I do think that FHA/HUD should pay attention to the FHA fund, because if we were to lose FHA financing, it would be very bad and not many buying. Yes, many fear that FHA is rising in its usage, and this could hurt them in the long run. But if we educate, make sure that those borrowing understand what they are doing... understand that you need to have reserves, and so much more...then we'll be okay. Look at VA financing... the numbers for VA financing are still decent... they have make sense guidelines. But think about this... one reason why FHA is taking a beating from the media as a type of mortgage that is high in foreclosures is because it's been utilized more over the years. Overall, I don't have a problem with this new increase, if it is to help keep FHA around.. people need to just adjust and stop bashing FHA for these increases.. it's a part of business. Just my .02. thanks

Feb 16, 2011 11:28 AM

Mark Peek

Roseville Rocklin Real Estate - Keller Williams - Roseville, CA

Peek Real Estate Group - Roseville CA Real Estate

Great Post. Thanks for keeping us updated with the guidlelines.

Feb 16, 2011 12:43 PM

Damon Gettier

Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA

Broker/Owner ABRM, GRI, CDPE

Jeff, I know that everybody is trying to be fiscally repsonsible all of a sudden but if they don't stop tweaking the system we will never come out of this mess.

Feb 16, 2011 01:34 PM

Damon Gettier

Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA

Broker/Owner ABRM, GRI, CDPE

Jeff, let me know if I linked back to you correctly please.

Feb 16, 2011 01:41 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

MARK... . my pleasure and thanks for the polite compliment.

DAMON... first off, thanks for reposting this and I think you did a good job at it.. so again, thanks. But in regards to your statement.. I am going to partially disagree. Let's take being fiscally responsible out of the equation. If we look at this new adjustment from a different angle, it would only reduce the buyers purchasing power by $9,000 if they wanted to keep their payment the same. Now, the biggest argument would be... well, that could take them out of certain markets. It very well could.. and maybe they would just have to settle for a deal. But let me point out 2 other things...

1.) I had predicted a year ago that rates should have been in the 7's by now. The gov't spent trillions of dollars on MBS's, which kept rates low. If it wasn't for that, rates would have been high. But my point, people's payments would even be higher without these changes... or would have to buy a lot less.

2.) People will buy no matter what. In my opinion, this won't hurt the housing market. Even when the economy was bad, bad economic news, ... people still bought. The recovery will do fine as long as you and I properly educate and as long as lenders don't put goofy loans out there just for profit that don't make much sense... or that the gov't doesn't force home ownership like they did in 1999 with the 100% fannie mae loans with 55% back-end ratios.

Overall, I had a few other things, but I can't remember now. The bottom line.. this won't kill things. I don't have a problem with this, because if FHA disappeared, then what? You think this is bad? That it will kill buying? lol Take FHA away 100%... rut row. Do you know that in Obama's new plan, he wants Fannie and Freddie to go to 10% down and nothing less. I will be writing about this soon. thanks

Feb 16, 2011 02:00 PM

Elizabeth Cooper-Golden

Huntsville Alabama Real Estate, (@ Homes Realty Group) - Huntsville, AL

Huntsville AL MLS

Where is that REBLOG button when I need it? I have bookmarked this so I can share it with my agents. Great info Jeff. You ARE the mortgage professional....you truly are. Thank you for always sharing your info with us all. I appreciate you!

Feb 16, 2011 02:22 PM

Kevin Kueneke

Caliber Home Loans - Encinitas, CA

San Diego Mortgage Banker

Jeff - I thought it was interesting that the mortgagee letter said that "this increase will have a minimal impact on borrowers", and then proceeded to show a purchase price example of only $163,000 with a MIP difference of $33 per month. I do a lot of FHA Jumbo loans in the $500's and $600's and the increase will exceed $100 per month. Definitely not pocket change!

However, I agree with you - we need FHA, and if this most recent change helps that cause, then I am all for it.

Feb 16, 2011 05:13 PM

Thomas Hall

Movement Mortgage, LLC - Franklin, TN

Loans processed in 7 days-Movement Mortgage

Jeff,

Great post! Your comment about Fannie Mae/conforming costs going up April 1st isn't exactly accurate. The fannie mae increase has most likely already been implemented by most lenders because the pricing increase is for loans delivered to Fannie Mae after April 1st. Which would mean loans closed in January and February would most likely have those pricing adjustments because the lender would be delivering those loans to Fannie Mae sometime in April.

Feb 16, 2011 07:45 PM

Jimmy Gilley

Gold Star Realty - Niles, MI

(269) 362-4841 - Search Niles MI Home For Sale

Glad I have a place to get this information so that I can betterbinform my clients.

Feb 16, 2011 08:20 PM

Dave Halpern

Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY

Louisville Short Sale Expert

Anything that raises the payment also lowers the purchasing power of the buyer.

Lower purchasing power means lower sales prices.

Lower sales prices means more short sales and foreclosure.

More short sales and foreclosures mean greater losses to banks and mortgage insurers.

Feb 16, 2011 09:47 PM

Fernando Herboso - Associate Broker MD, & VA

Maxus Realty Group of Samson Properties - Clarksburg, MD

301-246-0001 Serving Maryland, DC and Northern VA

Thank you for such a detailed report. . another necessary step for the recovery.

Feb 16, 2011 11:25 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

COOP... . yea, people have been talking about the reblog button. But as I mentioned above, I am giving everyone permission to use this post, as long as I get credit and a link back. Thanks and thanks for the kind words and for the compliment.

KEVIN... . yea, I found that interesting also... but I have been use to FHA/HUD with those kinds of statements in the last 2 years. I even mentioned that in one of my posts 1 1/2 yrs ago when FHA started to make some of these changes, and their verbiage, trying to make others believe that the change was minimal. Just come out and say it... as what you stated in your last sentence, I am okay with it, just don't hide behind some words that might insult my intelligence.

THOMAS... . first off, I feel it is very accurate because of when I posted it. Secondly, lenders and investors have overlays. Some changed their pricing models a week after that announcement.. some changed it 3 weeks ago.. and I know of one that just changed it 10 days ago. The bottom line is it will be a fact by April 1st. If pricing changes prior to that, that is the consumer who needs to ask the proper questions and shop properly. Hence why even before the change, FHA is better. I will have to do a new post now, showing both changes under different circumstances. You are correct about the fact that loans get sold to fannie and that these pricing hits might apply prior to the date. In any case, thanks for the polite compliment and for your input.

JIMMY... . I am glad that I could help some, because as real estate agents, it's good to be on top of this kind of information.

DAVE... . I follow part of what you are saying, but I disagree on that thinking. I am sure it happens some times, but that is not the true model in my opinion for foreclosures and lower sales prices which lead to foreclosures. When rates went up from 6% to 7%, that raised payments and didn't lower home prices.. and we didn't see a wave of foreclosures..You might have a theory that partially works at times... but I am still going to disagree and not use that as standard thinking or write about it to the public. That's just me. thanks

FERNANDO... . my pleasure.. and yes, as much as this raises the buyer's payment, we need to stabilize FHA and secure it as one of our major financing avenues. thanks...

Feb 17, 2011 12:43 AM

Barbara Altieri

Better Homes and Gardens RE Shore and Country Properties - Shelton, CT

REALTOR-Fairfield County CT Homes/Condos For Sale

Jeff -- I've been following this and appreciate your posting this here. Think I also picked you up on LinkedIn as well. I will be reposting or linking to this. Will give you credit, of course. Thank you for such a thorough explanation. I especially like your chart showing how the monthly payment will change as a result of the new MI. Nice work.

Feb 17, 2011 01:27 AM

Matt Odell

GVC Mortgage-Carmel - Carmel, IN

Home Mortgage Specialist with GVC Mortgage-Carmel

Thanks for the post, but it's August....

Aug 15, 2011 06:17 AM

Paul McFadden

Responsive Pest Control - Seattle, WA

Pest Control, Seattle, WA.

Of course today they announce the increase in UFMIP to 1.75%. The noose seems to be tightening all around! Oh well!

Feb 28, 2012 05:18 AM