Starting April 18th FHA Mortgage Insurance goes up.

The Department of Housing and Urban Development posted changes and topic clarifications in two Mortgagee Letters, 2011-10 and 2011-11, on February 14, 2011.  Below is a synopsis of key points made in these letters.
 
Annual Mortgage Insurance Premiums
There will be a 25 basis point increase in the Annual Mortgage Insurance Premiums effective for case numbers issued on or after April 18, 2011.  There are no changes to the Upfront Mortgage Insurance Premium (UFMIP).
 
 

 
Automatic Case Number Cancellation
Beginning April 18, 2011, FHA systems will automatically cancel any uninsured case number where there has been no activity for 6 months since the last action, except for loans where an appraisal update has been entered, and/or loans where the Upfront Mortgage Insurance Premium (UFMIP) has been received.
 
Last action includes:

• Case number assigned,
• Appraisal information entered,
• Firm commitment issued by FHA
• Insurance application received and subsequent updates, and
• Notice of Return and resubmissions

Last action does not include updates to borrower names and/or property addresses. For example, making changes to the number of borrowers on the loan will not reset the 6 month timeframe for automatic cancellation.
 
To prevent automatic cancellation of case numbers for which mortgage insurance will be sought, mortgagees must enter appraisal information; successfully transmit insurance application, etc.
 
Note:
This automatic cancellation is applicable to case numbers assigned prior to April 18, 2011, including case numbers for new construction and HUD homes.
 
FHA Refinance Transactions
Current Status of the Refinanced Mortgage
Mortgagors must be current on the mortgage being refinanced for the month due prior to the month in which they close the refinancing, and for the month in which they close. For example, if the mortgagor is closing on April 8, the mortgagor must have paid the March payment within the month of March and the mortgagor must make the April payment by closing. The mortgagor has the option to make the April payment at the beginning of the month, or may include the April payment in the payoff amount at closing.
 
Subordinate Liens
If there is an existing subordinate lien on the property, such as a Home Equity Line of Credit (HELOC), the entire lien must be subordinated at refinance. For the calculation of the Combined Loan to Value (CLTV) ratio, the mortgagee must use the maximum accessible credit limit of the existing subordinate lien.
 
The following changes are effective for all case numbers assigned on or after April 5, 2011
 
Mortgagor Occupancy of Former Investment Property
 

 
Three and Four Unit Properties
HUD Handbook 4155.1.2.B.4, which discusses purchase transactions involving 3-4 unit properties, also applies in its entirety to all refinance transactions of 3-4 unit properties.
 
Net Tangible Benefit
This new guidance bases the calculation of the net tangible benefit on the principal and interest (P&I) and Mortgage Insurance Premium (MIP). The change in guidance is to allow mortgagors who can reduce their P&I and MIP by 5% to do a streamline refinance. 
 
"Net tangible benefit"is defined as:
A 5% reduction to the P&I of the mortgage payment plus the annual MIP, or refinancing from an Adjustable Rate Mortgage (ARM) to a Fixed Rate Mortgage.
 
Note: Reducing the term of the mortgage, in and of itself, is not a net tangible benefit.
 

 
Use of TOTAL Scorecard
Mortgagees must not use TOTAL Scorecard on streamline refinance transactions. If the mortgagee inadvertently uses TOTAL, it must not enter "ZFHA" as the underwriter in FHA Connection. Instead, the mortgagee must use its Direct Endorsement (DE) underwriter designation, and the DE underwriter must sign and use his or her Computerized Home Underwriting Management System (CHUMS) identification number on page 3 of the HUD 92900-A, and page 1 of the FHA Loan Underwriting and Transmittal Summary.
 
Maximum Insurable Loan Balance
Mortgagees must not use an appraisal to increase the insurable mortgage balance beyond the sum of the outstanding principal balance and the new Upfront Mortgage Insurance Premium (UFMIP). The mortgagee may not add closing costs, discount items, prepaid items, or other financing costs to the new loan balance. Mortgagees may only increase the insurable balance beyond the sum of the outstanding principal balance and the new Upfront Mortgage Insurance Premium (UFMIP) by using a credit-qualifying refinance with an appraisal.
 
The following items are clarification of existing guidance:
 
Seasoning of the Refinanced Mortgage
On the date of FHA case number assignment:

• The mortgagor must have made at least 6 payments on the FHA-insured mortgage that is being refinanced, and
• At least 6 full months must have passed since the 1^st payment due date of the refinanced mortgage, and
• At least 210 days have passed from the closing date of the mortgage being refinanced

 
For example, if the FHA case number on the mortgage being refinanced was closed on or before December 1, and if mortgagor's 1^st payment on that mortgage was due on January 1, the mortgagee may request assignment of an FHA case number for the refinancing mortgage no earlier than July 1.
 
Acceptable Payment History
The refinancing mortgagee must document that the mortgagor has an acceptable payment history. The payment history is acceptable if the mortgagor:
 

• Is current, and
• Has made all payments on the mortgage being refinanced within the month due for the previous 12 months
• For mortgages with more than 6 months and less than 12 months of payment history, the mortgagor must have made all payments when due. Mortgages with less than 6 months of payment history are not eligible for a cash-out refinance