political gamesmanship on the part of HUD-MI premiums starting Oct 1st

The Housing and Economic Recovery Act of 2008 goes into effect on October 1, 2008. As part of this Act, Congress placed a one year moratorium on risk based mortgage insurance premiums on FHA loans.

Under the risk based  premium structure that HUD put into effect on July 14, 2008, borrowers with better credit and lower loan to value mortgages are able to pay lower rates while riskier loans carry higher insurance rates. A perfectly sensible system that FHA statistics show may actually be a major benefit to lower income borrowers since this members of this group with FHA loans have been shown to have higher credit scores on FHA loans.

As part of what may be a little bit of political gamesmanship on the part of HUD, HUD has just announced a new mortgage insurance premium structure to take effect on October 1, 2008. Here are the details:

Upfront Mortgage Insurance Premiums

• Purchase Money Mortgages and Full-Credit Qualifying Refinances = 1.75 Percent

• Streamline Refinances (all types) = 1.50 Percent

• FHASecure (Delinquent Mortgagors) = 3.00 Percent

Annual Insurance Premiums (paid monthly)

• On 30 year loans with LTV > 95 %, annual mortgage insurance will be .55%

• On 30 year loans with LTV < 95%, annual mortgage insurance will be .50%

• On FHA Secure loans with LTV > 95%, annual mortgage insurance will be .55%

• On FHA Secure loans with LTV < 95%, annual mortgage insurance will be .50%

• On 15 year loans with LTV > 90%, annual mortgage insurance will be .25%

• On 15 year loans with LTV < 90%, annual mortgage insurance will not be required

These premium changes apply to the folllowing FHA loan programs: 203b (standard 1-4 unit property), 203k (rehab loan), and 234c (condominiums) but they do not apply to FHA reverse mortgages.

Mortgages with FHA case number assignments made on July 14, 2008, through and including September 30,2008, shall maintain the risk-based premium structure for the life of the mortgage.

HUD promises to let us know what they plan to do at the end of the moratorium, but keep your eye on the legislation being pushed that restores seller paid down payment assistance programs. This legislation includes risk based mortgage insurance premiums.