Written By: Bonnie Wilt-Hild
I have had a lot of questions this week regarding risk based pricing where FHA loans are concerned or as it would be referred to by FHA “Flexible Premium Pricing” and if it were true that HUD will implement such policy soon. The answer to this question is yes and the policy will go into effect on July 14, 2008.
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In a news release issued by the US Department of Housing and Urban Development, FHA and the Bush Administration has stated that FHA will assume this new premium pricing structure as a way to insure that taxpayers do not assume the cost of the expansion of the FHA Secure initiative.
Additionally, it is HUD’s hope that implementing this risk-based insurance structure will allow them to reach more borrowers while at the same time preserving traditionally lower UFMIP premiums for borrowers with strong credit histories. This risk-based structure will continue to provide for a financially sound department as the FHA mortgage insurance program is funded through its mortgage insurance premiums, not tax payer dollars.
As we are aware FHA has in fact expanded the FHA Secure initiative to allow borrowers delinquent on their non-FHA ARM’s due to a rate reset or the occurrence of an extenuating circumstance who experienced no more then two 30-day or one 60 day late payment in the most recent 12 months prior to rate reset to qualify for refinance under FHA Secure.
Additionally, it will further allow delinquent borrowers who have experienced no more then one 90 day late payment on no more the three 30 day late payments prior to reset to refinance providing the LTV does not exceed 90%. As a result of the increased risk of this program the new UFMIP is set at 2.25% of the base loan amount regardless of loan to value and the Annual premium which is collected monthly is set at .55%.
As FHA has the statutory authority to charge as much as 2.25% for UFMIP and .55% percent for the annual premium, it appears that they will implement this pricing structure for all FHA mortgage insurance programs. Specifics as to how it will apply to programs other then FHA Secure have not yet been disclosed by the department in the form of a mortgagee letter however more information can be found in the Federal Register published on May 13, 2008 Vol. 73, No. 93.
Per the Federal Register Risked based premiums after July 14, 2008 will apply to all Title II FHA mortgage products including 203b, 203k and 234c programs. Risk based premiums will not effective Title I programs. Changes apply to both 30 and 15-year programs and implement guidance for using the matrix, which is also included in the information provided in the federal register. Included in guidance is minimum credit scores and LTV maximums for manually underwritten cases or cases referred by Total.
It is strongly recommended that all mortgage professionals use the guidance found in the Federal Register to prepare for the changes coming in July. I have attached the link below for easy access. Happy Underwriting!
http://edocket.access.gpo.gov/2008/pdf/E8-10625.pdf
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
About The Author
Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
