FHA Loans and FHA Mortgages

FHA loans will no longer have mortgage insurance premiums based on a combination of loan-to-value ratios and credit scores. This actually starts today, October 1, 2008, and rescinds Mortgagee Letter 2008-16. This is for all FHA mortgages that have FHA case number assignments as of today.

So, what does this mean?  Well, we won’t have a chart of like 18 different options, which was tedious at times, depending on the borrowers credit scores. It’s now pretty simple and basic.

Overall, this is in effect through September 30th, 2009. It will be revisted prior to that to decide whether changes should be made, depending on the mortgage insurance pool & if it lost monies.Changes will be effective at the beginning of the fiscal year. FHA’s fiscal year begins 10/1 and ends 9/30.

Upfront Mortgage Premiums :  FHA loans will have an upfront premium in an amount equal to the following percentages of the mortgage as listed below :  (these are all applied to the base loan amount)

  –  Purchase money mortgages & Full-credit qualifying refinances = 1.75 percent

  –  Streamline refinances (all types)  =  1.50 percent

  –  FHA Secure (not sure about the new FHA Hope Program)  = 3.00 percent

Annual Premiums : (these are monthly mortgage insurance - MMI)  Below is a chart to show the difference between the LTV (loan to value) and the term of the mortgage.

Highlights regarding FHA’s Mortgage Insurance Premiums :

  –  All FHA loans to borrowers with a credit score must be risk-classified by FHA’s Total Mortgage Scorecard.

  –  Those borrowers with credit scores below 500 and with a LTV ratio equal to or above 90 percent are not eligible for FHA-insured mortgage financing.

  –  Borrowers without credit scores will need to be manually underwritten based on the credit criteria described in Mortgagee Letter 2008-11.

  –  Eligibility for delinquent mortgagors under the FHA Secure initiative is described in full in Mortgagee Letter 2008-13.

** FYI – In the previous Upfront Mortgage Insurance Premiums that were determined in Mortgagee Letter 2008-16, first-time homebuyers were allowed to take a HUD approved counseling course to reduce their upfront mortgage insurance. Since the new premiums are in effect now with 1 kind of percentage, this does not apply now. **

Overall, it is extremely important for all loan officers and lenders to read Mortgagee Letter 2008-22, because there are 5 pages of new rules and guidelines. What I listed here were the basics of the new changes. The mortgagee letter also talks about the defining of the “decision credit score", if you have multiple borrowers, about non-traditional credit, and the underwriting rules when using FHA’s total mortgage scorecard. That last section is very detailed and very important.

For your FHA mortgage needs, please don’t hesitate to contact me.

FHA Loan changes for 2008 - 2009

Part 1 - Down Payment Assistance Programs

Part 2 - Upfront Mortgage Insurance Premiums

Part 3 - Down payment and Maximum Mortgage Requirements

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