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HUD announces reduced FHA mortgage insurance rates

On January 9, 2017, the Department of Housing and Urban Development announced that FHA annual mortgage insurance premiums (m.i.p.) will be reduced by 25 basis points (.25%) for all FHA loans with closing/disbursement dates on or after January 27, 2017. This translates into a savings of $500 annually or $41.67 monthly for borrowers with a $200,000 mortgage balance.

The effective date pertains to purchase mortgages closed on or after January 27th or refinance transactions funding on or after January 27th. Since the federal Truth-In-Lending Act requires that borrowers have 3 day right of rescission after closing, refinance transactions are funded after the 3 day rescission period expires.

The new annual rates are .60% for all forward loans with terms >15 years and loan-to-value ratios exceeding 95% and .55% for loans with LTV’s of 95%or less. For loans with terms of 15 years or less, the new rate is .50 % for loans less than 625,500 and LTV over 90%. Loans with 90% or less LTV will have new rate of .25%. Borrowers with loan amounts exceeding $625,500 will pay between 25% and ,50% depending on LTV. For additional information, please refer to HUD Mortgagee letter 2017-01

The new changes will not affect FHA HECM reverse mortgages.

This is great news for FHA borrowers as it is being initiated just after mortgage rates have increased slightly and will help offset any lost buying power due to higher rates. It’s also especially helpful to offset the huge premium increases put in place since the collapse of the housing market.

Rates are now at close to pre-housing crisis levels indicating a strength in the risk level and surplus reserves in the Mutual Mortgage Insurance Fund (MMIF). The Federal Credit Reserve Act mandates that the level be maintained at a minimum of 2% of loan balances to mitigate any losses due to defaults. During the last 4 years, ending on fiscal year ending September 30, 2016, the fund increased by 44 billion dollars, so hopefully any future surpluses created may lead to future mortgage insurance decreases and increase housing affordability for FHA borrowers.

The FHA upfront mortgage insurance premium will remain at 1.75% of base loan amounts on all FHA transactions. This is a one-time expense on each transaction and may be mitigated by credits for borrowers who are refinancing and have already paid the upfront mortgage insurance premium on their original purchase transaction.

Posted in:FHA and tagged: FHA m.i.p. reduced
Posted by Joe Bell on January 12th, 2017 9:35 AM