Here we thought FHA loans were the safe haven for our credit challenged clients...

Well this has been talked about for awhile now in a few FHA update classes I have attended but its for real now and will kick into effect in less than a month. The new UFMIP (Up front mortgage insurance premium) schedule will take effect for FHA loans with a case numbers pulled on or after July 14^th, 2008. 

Given FHA's current financial situation, the changes are quite mild. FHA recently announced a $4.6 billion dollar loss, which is more than four times higher than last year's shortfall.  See this N.Y. Times article: http://www.nytimes.com/2008/06/10/business/10housing.html?_r=1&oref=slogin 

Since it's likely that our national housing market may get worse before it gets better, it is a bit surprising that the UFMIP cost will actually decrease for borrowers with 680 or better scores. Also, the highest premium category is only 2.25% - for borrowers with below 560 scores.

For those of you that I have completely lost, on FHA insured loans, there is the UFMIP that has been 1.5% of the loan amount that is added into the loan at closing and then their there has been a monthly MI premium of .50%. For example on a $300k loan, you would have a $4500 UFMIP and a $125 monthly payment tacked on. 

To put things into context though, in 1991 the FHA program required 3.8% UFMIP and .5% annual (monthly) premiums.

Given all of the changes that are being introduced by private mortgage insurance companies, FHA continues to demonstrate a tendency towards subsidizing a housing market recovery.

As originators, that's a positive that we can all sell for the most part unless your clients is one of the lucky ones with a score that is 585 and then they will be paying .50% more in UFMIP and .05% more in their monthly MI factor. Here is the chart below.

 Be Blessed!