Moratorium on New FHA Risk-Based Pricing--Going back to pre-July 14th, well, almost

By
Mortgage and Lending

FHA has sent a notice to the Federal Register regarding the moratorium on risk-based pricing on upfront mortgage insurance. You may view it here.

Although we already knew about this moratorium when the Housing and Economic Recovery Act (HR 3221) was signed into law on July 30, 2008, FHA is finally publishing its additional requirements to carry out the act.

The moratorium on the risk-based premium structure that just went into effect on July 14, 2008 will begin on October 1, 2008. In plain English, the new pricing structure for upfront mortgage insurance that we just started last month will end next month on September 30, 2008. The moratorium period will last from October 1, 2008 until September 30, 2009.

IMPLICATION FOR OUR CLIENTS (BUYERS OR BORROWERS)

Right now, any loan whose FHA case number was assigned on or after July 14, 2008 until September 30, 2008 will have risk-based upfront insurance premiums as follows:

Loan to Value (LTV)

FICO 300-499

500-559

560-599

600-639

640-679

680-850

Non-Traditional

 ≥ 95.01%

Not Allowed

2.25%

2.00%

1.75%

1.50%

1.25%

2.00%

 90.01% - 95%

Not Allowed

2.00%

1.75%

1.50%

1.50%

1.25%

1.75%

 ≤ 90%

1.75%

1.75%

1.50%

1.25%

1.25%

1.25%

1.50%

 

For example, on a base loan amount of $300,000, credit score between 680-850, and LTV of 95.01% or greater, the upfront mortgage insurance premium would be $300,000 X 1.25% = $3,750.00. This amount could either be paid in cash or financed into the loan.

However, if this same borrower would have his or her loan assigned a FHA case number on or after October 1, 2008 until September 30, 2009, then the upfront mortgage insurance would be a flat 1.75% on a purchase. Therefore, the premium would be $300,000 X 1.75% = $5,250.00.

Buyers who have a credit score of 640-850 and who have 5% or less on a down payment would actually benefit from having their FHA case number assigned before October 1, 2008 since their upfront mortgage insurance would be anywhere from 1.25% to 1.50% as opposed to waiting until October 1st and having it calculated at the flat 1.75%.

Buyers who have a credit score of 600-639 and who have 5% or less on a down payment would not see any benefit or detriment from their FHA case numbers being assigned either before or after October 1, 2008 as regards to their upfront mortgage insurance is concerned.  They might see a small benefit on their monthly mortgage insurance.

Buyers who have a credit score of 500-599 (and those with non-traditional credit) and with 5% or less for a down payment will benefit from waiting until October 1, 2008 for their FHA case numbers to be assigned. On a $300,000 loan amount, 5% or less down payment, and FICO of 500-559, their upfront mortgage insurance would be $300,000 X 2.25% = $6,750.00 before October 1st and $300,000 X 1.75% = $5,250.00 on October 1st and thereafter. 

Of course, for other loan to values, you could look at the grid and figure out the sweet spot and determine whether getting the FHA case number assigned before or after October 1st will be more advantageous if the buyer is able to do so.

This information may help your buyers or borrowers if they are a little flexible in their loan application and processing timing. It would be good to be in close contact with a knowledgeable and professional Mortgage Consultant that can help buyers with their options according to their objectives and circumstances.

 

 


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