If you are a hopeful first-time Denver home buyer, Vintage Homes of Denver would like to advise you to consider initiating the purchase of your Denver real estate before April 17th, 2011. Why? On April 18th, the Federal Housing Administration (FHA) will be increasing the annual mortgage premium on their home loans by 25 basis points. Huh?
In order to better educate their prospective clients, Jesse Sehlmeyer of Vintage Homes of Denver and Scott Mulvany of Cherry Creek Mortgage have put the legalese (see below) into understandable English.
February 16, 2011
In a mortgagee letter (ML 2011-10) released February 14, FHA announced it will increase by 25 basis points (bps) the annual mortgage insurance premium (MIP) for FHA single-family loans assigned case numbers on or after April 18, 2011; the upfront MIP will remain unchanged at 1.0 percent.
In the mortgagee letter, FHA says the increase in the annual mortgage insurance premium is necessary to maintain the solvency of the Mutual Mortgage Insurance Fund (MMIF). The guidance cites the legislative mandate in section 202 of the National Housing Act requiring that FHA’s MMIF remain financially sound. The chart below illustrates the 25 basis points increase in the annual mortgage insurance premiums.
FHA predicts the increase will have minimal impact on borrowers but will significantly strengthen the capital position of the MMIF. FHA Commissioner David Stevens says the annual payment adjustment will increase borrowers’ costs about $30 per month. The new pay structure is estimated to contribute nearly $3 billion annually to the MMIF. Stevens has also said it will encourage some borrowers to obtain mortgages in the private sector.
Legislation signed into law last year (H.R. 5981) authorizes FHA to raise the maximum allowable annual MIP for mortgages below 95 percent of value to 1.50 percent and for mortgages at or above 95 percent of value to 1.55 percent. The law also authorizes the HUD Secretary to adjust the amount of any initial or annual MIP through a notice published in either the Federal Register or in a mortgagee letter.
Although the law raised the statutory ceiling for the annual MIP to as much as 1.55 percent in some instances, FHA has decided not to increase the premiums to those levels currently. This is the second such increase to the annual mortgage insurance premium in less than six months, with the prior increase taking place last October. Existing and reverse mortgage loans insured by FHA are not impacted by the pricing change.
The proposal was referenced in the Administration’s recently released housing finance proposal as well as the President’s FY 2012 budget request (analyzed here by NCSHA).
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