Only one major player in the mortgage market has never shifted to risk-based pricing - FHA, the largest federal mortgage program for first-time and minority buyers. But that may be about to change.
Beginning July 14th, FHA will now utilize risk based pricing for mortgage insurance, giving borrowers with better credit lower closing costs for the upfront premium. The monthly premium will increase by 1 basis point.
The current upfront premium of 1.5% will be dropped to 1.25% for borrowers with the middle FICO score above 600. For borrowers below 559, the premium will increase to 1.75%. Borrowers in between the two markers will remain the same. For loan to values above 97% which is most common, the premiums increase further...up to 2.25% for the worst credit with the highest LTV. The monthly premium for high LTV goes up to .55% which is considerably lower than conforming mortgage insurance.
This change in policy will reduce costs for borrowers with decent credit, but raise them for the least qualified borrowers. Other key changes in the FHA MI policy are lowering the upfront MIP to 1% on streamline refinances and not considering gift funds in determining risk for the LTV.