FHA's Mortgage Insurance Increase Heads To Obama's Desk

“As I have previously stated in my testimony before Congress, FHA will lower its upfront premium simultaneously with the increase to the annual premium¹. It is our intention that effective on September 7, 2010, FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 years². A Mortgagee Letter will be forthcoming once President Obama signs the bill into law, but with today’s passage of H.R. 5981 and our expedited implementation schedule, I wanted to immediately inform the industry of our plans so the lending community can begin preparing for the operational and system changes required to implement FHA’s new mortgage insurance premium structure on all new case numbers by September 7, 2010”  http://portal.hud.gov/portal/page/portal/ver-1/HUD/federal_housing_administration/docs/August_Special_Edition_2_FromtheDeskOf.pdf

So what does this mean in English?  It means they are reducing the Upfront Mortgage Insurance Premium from 2.25% to 1% and increasing the annual mortgage insurance premium from .55% to .85-.90%.  That see what this means in dollars.  If someone is taking out a loan for $150,000 the Upfront Mortgage Insurance Premium will be $1500 instead of $3375 but the monthly mortgage insurance will be $106.25-$112.50 per month vs. $68.75 per month where it is today.  The difference that Upfront Premium that they reduced gets rolled into the loan amount so a borrower doesn’t feel the effects of it as much but with the higher monthly premiums it may make it harder for some to qualify.  This isn’t a huge change but I think you are going to see a slow push towards Conventional loans.