February 27, 2012
HUD No. 12-037
WASHINGTON – “As part of ongoing efforts to encourage the return of private capital in the residential mortgage market and strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund, Acting FHA Commissioner Carol Galante today announced a new premium structure for FHA-insured single family mortgage loans. FHA will increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount. Upfront premiums (UFMIP) will also increase by 0.75 percent”.
“The Temporary Payroll Tax Cut Continuation Act of 2011 requires FHA to increase the annual MIP it collects by 0.10 percent. This change is effective for case numbers assigned on or after April 1, 2012. FHA is also exercising its statutory authority to add an additional 0.25 percent to mortgages exceeding $625,500. This change is effective for case numbers assigned on or after June 1, 2012″.
“The UFMIP will be increased from 1 percent to 1.75 percent of the base loan amount. This increase applies regardless of the amortization term or LTV ratio. FHA will continue to permit financing of this charge into the mortgage. This change is effective for case numbers assigned on or after April 1, 2012″.
In addition to the announcement by HUD above, there will be a change in Seller Concessions finalized in the near future. The proposed rule limits concessions to 3 percent or $6,000, whichever is greater. It also limits acceptable use of concessions to borrower closing costs, prepaid items, discount points, the FHA Upfront Premium, and interest rate buydowns. The seller concession cannot exceed the actual closing costs prohibiting cash to the borrower at closing. Comments are due March 26, 2012.
Published January 30,2012
On January 20, 2012, the FHA announced policy changes for FHA Mortgage Loans which will have a financial impact on many home buyers, and will also affect many home sellers whose property appeals to FHA home buyers. The proposed policy changes for FHA Mortgage Loans will increase the Mortgage Insurance Premium(MIP), relate the FICO Score to minimum down payment requirements and reduce the allowable seller concessions from 6% of the sale price to 3%.
Upon origination of a FHA Mortgage, there is a fee charged to the buyer commonly referred to as UFMIP (Up Front Mortgage Insurance Premium). This Up Front Mortgage Insurance Premium is added to the original mortgage loan amount and is financed over the length of the loan. The home buyer’s mortgage loan payment is then calculated based on the increased loan amount(Initial Mortgage Loan + UFMIP). The Upfront Mortgage Insurance Premium payments go into an escrow account set up by the U.S. Treasury Department and the funds are used to protect the government in case the borrower defaults on the FHA Mortgage.
Currently, this UFMIP fee is 1.15% for FHA Mortgages with less than 5% down and 1.1% for for down payments over 5%. The FHA announced that it plans on increasing this up front mortgage insurance by .5% , and to go into effect in the Spring. That is an increase of $1,000 on a $200,000 mortgage loan. FHA home buyers generally finance the Upfront Mortgage Insurance Premium and it is added to the buyers original mortgage. Monthly mortgage payments are then based on the total of the original mortgage plus the financed Upfront Mortgage Insurance Premium. In other words, a FHA home buyer’s mortgage payment will be higher once this proposed increase in the Up Front Mortgage Insurance Premium becomes effective..
The FHA is also proposing a change in required FICO Scores requirements as they relate to down payment requirements. New borrowers will be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. Buyers with less than a 580 FICO score will be required to put down at least 10%. This change will be posted in the Federal Register in February for comments. Early Summer is the planned date for implementation.
Another planned policy change is that of allowable seller concessions. Currently at 6% of the sales price, the FHA is planning on reducing the amount of seller concessions to 3%. This change will be posted in the Federal Register in February for comments and early Summer is the planned date for implementation.
However, there may be further consideration and change to this proposed change by the FHA due to reaction from real industry professionals. There is the possibility that rather than proposing an across the board reduction of seller concessions to 3%, consideration may be given to perhaps allowing 4% or 5% on smaller loans, 3% on loans above some set sales price limit or perhaps setting a maximum dollar cap on seller concessions rather than a percentage cap.
Current policy allows a seller is to contribute 6% their sale proceeds to help with the buyer’s closing cost. While that amount may be excessive for closing costs and prepaids in some market areas, a change to 3% will have a negative impact on many buyers seeking a FHA Mortgage. Due to historically low mortgage interest rates and favorable home prices, many buyers are in the market to purchase a home who have the required 3.5% down payment and have sufficient income to qualify for the mortgage payment, but do not have the additional savings for real estate closing costs. There needs to be some compromise in this proposed change in sellers concessions.
Click the Link below to read the article.
HUD Announces Policy Changes for FHA Mortgages
The above article,“HUD Announces Policy Changes for FHA Mortgage Loans”, was written by David Fialk, REALTOR, Broker Owner, Choice Realty Co., Iselin, New Jersey and regularly posts real estate articles of interest for home buyers, home sellers and home owners.
David can be reached via email or by phone at 732-283-3400 or at www.DavidFialk.com.
Licensed since 1971, David has helped over 1800 families move across town, across the state and across the country and specializes in the towns of Iselin, Colonia, Edison, Woodbridge, Avenel, Fords, Sewaren, Port Reading, Keasbey, Carteret and Metuchen in Middlesex County, New Jersey.
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