RETURN TO HOMEThe FHA has been a big player in the mortgage industry for many decades, and a considerable player in the past decade. After the big down fall of the mortgage world, the FHA was deemed the new “sub-prime” lender. Which it was not!
The unfortunate thing was that the FHA was also making poor choices with lending, the same as Fannie and Freddie. It was labeled as the lifeboat for the mortgage industry until this year when they announced they were a “sinking ship” also. The Administration is trying to save the FHA before more damage is done by ramping up guidelines and increasing the fees paid (by the consumer) for each loan.
The largest fee that is paid for an FHA loan is the MIP (mortgage Insurance Premium). MIP is similar to PMI (Private Mortgage Insurance) which is used for conventional mortgages with an LTV over 80%- but must be paid on all FHA loans regardless of LTV and size.
The FHA charges two types of MIP, an upfront fee and an annual fee. They changed them once this year, increases the upfront MIP to 2.25% of the loan amount and the annual to .5% of the loan amount paid monthly.
They are changing it again. As of October 4th, 2010 all NEW (submissions for case numbers) FHA loans will now have a lower upfront and a higher annual MIP charge. In general, the two most important changes are the following:
· The upfront MIP will be reduced to 1.00% of the mortgage amount
· The annual MIP payment will be increased to .85%, paid monthly
This is for both purchases and refinances, and of course there are twenty caveats, but this is the general rule to follow. For the consumer, it makes the cost to close the loan less, but increases the monthly payment- so think of it as a wash. For a $100,000 loan, the upfront will be lower by about $1,250 and the monthly will increase by $30. Psychologically, it may work out better for the consumer. For the FHA it supposedly will increase the monthly cash flow by 300 million a month, thus will be monetarily better.
If the FHA can quickly improve their financial status simply by adjusting some fees, this will help make the industry stronger and help put it back on the path to recovery. This plan seemed to go smoothly and simply- almost like why didn’t they think of that one sooner? It does seem like they keep throwing “it” against the wall to see what sticks- but at this point no one seems to have an exact science in mind.