FHA MIP Changes

The payroll tax cut continuation Act of 2011 that was signed into law on December 23, 2011 increased the annual FHA Mortgage Insurance Premiums (MIP) by .10%. The increase is effective with case numbers assigned on or after April 9th and will vary by loan term and down payment. Premiums for 30 year loans with less than 5% down will be 1.25% of the loan and with 5% or more down the premium will be 1.20%. The premiums for 15 year loans are .60% with less than 10% down and .35% for 10% or more down. The monthly MIP is waived for 15 year loans with 22% or more down. This follows an increase just one year ago (April 17th, 2011) of .25%, and by another .30% on October 4th, 2010. So, in 18 months, the monthly mortgage premium for a minimum down payment FHA loan has increased from .55% to 1.25%.

The up-front mortgage insurance premium (UFMIP) will increase from 1.00% to 1.75% on April 9th. The UFMIP has been changed several times over the last few years. On April 5th, 2010 the up-front MIP was increased from 1.75% to 2.25% and on October 4th, 2010 the premium was decreased to 1.0%.

The annual premium for FHA high balance loans (above $625,500) will be increased by another .25% effective June 11th to 1.5%. The FHA high balance loans are available in high cost areas such as Alaska and Hawaii.

So, for a $200,000 loan the monthly premium will increase from $191.67 per month in to $208.33 in April. This is up from the $91.67 monthly charge in October 2010. The increase in the up-front MIP will go from $2,000 to $3,500.

All these changes are intended to shore up the FHA Mutual Mortgage Insurance Fund (MMIF) fund, which is expected to have a shortfall of $668 million below the statutory 2.0% requirement for 2013.

As part of the Presidents call to help homeowners refinance out of high interest rate loans, FHA will reduce the both the up-front and annual premiums for streamline refinance loans. The new up-front premium will be .01% ($20.00 for a $200,000 loan) and the annual renewal will be .55%. These premiums effectively keep the cost of the FHA insurance the same as it was, so the majority of the interest savings will not be eaten up by the increase in the MIP. However, the only mortgages that are eligible for these premiums are loans that were endorsed on or before May 31, 2009, which is about one-third of the current FHA loans. Also, the endorsement date is the date FHA accepted the loan from the lender, which may be several days after closing, so customers need to check with a lender to see if their current loan is eligible.

Interest rates have ticked up this week; the rate for a no point low fee 30 year fixed rate loan is up to 4.25%. This increase is caused by several factors including the optimism in Europe, an increase in the inflation index, an increase in new jobs created, and a slight decline in the unemployment rate. However, the most probable reason for the recent uptick in rates is that the FED released the results of the Big Bank stress test, and 15 out of the 19 large banks met the capital reserve requirements. This means the FED may not need to keep the rates low for as long as previously expected.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Peoples Mortgage. You can find all of his posts online at VanEd.com/NewsLog.

Written and Published by: VanEd

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