FHA Risk-Based Premiums Take a Break

by Amy Avery, Compliance Specialist 

When President Bush signed the Housing and Economic Recovery Act of 2008 (HERA) on July 30, 2008, the new FHA risk-based premiums (using a combination of credit bureau scores and loan-to-value ratio) were put out on the curb.  The law prohibits HUD from taking any action to implement the risk-based premium program for 12 months beginning this October.  The statutory moratorium will be effective on October 1, 2008 for new FHA case number assignments made on or after that date.  This means FHA-approved mortgagees will need to move quickly, once again, to implement a new system of upfront and annual insurance premiums. 

Although the new premiums will no longer be risk-based, some rates will be higher than they were before July 14, 2008.  Mortgages with FHA case number assignments made on July 14, 2008, through and including September 30, 2008, will maintain the risk-based premium structure for the life of the mortgage.

Per FHA Mortgagee Letter 2008-22, the upfront and annual premiums on mortgages for which new FHA case number assignments are made on or after October 1, 2008 and before October 1, 2009, are as follows:

Upfront Premiums:

FHA will charge an upfront premium in an amount equal to the following percentages of the mortgage:
• Purchase Money Mortgages and Full-Credit Qualifying Refinances = 1.75 Percent
• Streamline Refinances (all types) = 1.50 Percent
• FHASecure (Delinquent Mortgagors) = 3.00 Percent.

Annual Premiums:

An annual premium, shown in basis points below, to be remitted on a monthly basis, will also be charged based on the initial loan-to-value ratio and length of the mortgage (except for FHASecure delinquent mortgages) according to the following schedule:

• Purchase Money Mortgages, Full-Qualifying Refinances, and Streamline Refinances:
  • Loan term over 15 years, and LTV less than or equal to 95 = .50 Percent
  • Loan term over 15 years, and LTV over 95 = .55 Percent
  • Loan term 15 years or less, and LTV less than or equal to 95 = -None-
  • Loan term 15 years or less, and LTV over 95 = .25 Percent
    
• FHASecure (delinquent mortgagors, regardless of loan term):
  • LTV less than or equal to 95 = .50 Percent
  • LTV over 95 = .55 Percent

It is important to note that borrowers who refinanced their delinquent non-FHA ARM into an FHASecure mortgage are not eligible to streamline refinance their FHASecure mortgage. The refinance transaction subsequent to the FHASecure mortgage must be a full qualifying refinance.

FHA will issue another notice that will formally advise when the moratorium is concluded and the premium pricing structure that should be followed once the moratorium ends.  They intend to make any subsequent changes to the premiums schedule only on an annual basis and make them effective at the beginning of the fiscal year. FHA’s fiscal year begins October 1 and ends September 30.  Maybe we will finally get to take a break on new FHA premium schedules until next year.