Today, David H. Stevens, the Assistant Secretary for Housing, published a letter informing the mortgage industry of the intent to raise annual mortgage insurance premiums on FHA loans. On loan terms over 15 years, the rate for LTV’s under 95% will raise from .50% to .85%. For LTV’s over 95% the premium will raise from .55% to .90%. Terms of less than 15 years will remain the same.
They will also reduce the up front mortgage insurance premium down to 1% on all loans.
It is their intent to make this effective on September 7, 2010. The change relies on the passage of H.R. 5981 which allows them the ability to increase these premiums up to a maximum of 1.55%.
Here is a scenario of how this change affects a borrower who is taking a loan for $97,750 on a home worth $100,000.
Current:
$97,750 plus 2.25% for up front mortgage insurance equals a total loan amount of $99,949.37. The monthly amount for mortgage insurance at .55% would start at $45.81. An estimated principle and interest payment at 4.5% over 30 years would be $506.42
Total principle and interest plus monthly mortgage insurance is $552.23
Proposed:
$97,750 plus 2.25% for up front mortgage insurance equals a total loan amount of $98,727.50. The monthly amount for mortgage insurance at .90% would start at $74.04. An estimated principle and interest payment at 4.5% over 30 years would be $500.23.
Total principle and interest plus monthly mortgage insurance is $574.28
As you can see the overall cost will be less up front but more monthly.
Update: On August 10, 2010 Vicki Bott published a letter stating these changes will not go into effect until October 4, 2010. She sites lenders not having enough time to implement system changes as a reason for the extension.
These changes will go into effect on all new case number’s pulled on October 4, 2010 and after.
Update: FHA published the mortgagee letter explaining these changes.