FHA Mortgage Insurance Premium Increase

     

     This is the fourth increase in the last two years. What are the ramifications of this increase and why is it coming about now? In an ongoing effort to encourage the return of private capital to the residential mortgage market and strengthen the FHA Mutual Mortgage Insurance Fund, On February 27^th 2012, FHA Commissioner announced a new premium structure for FHA-insured single family mortgage loans. FHA will increase its annual mortgage insurance premium (MIP) by 0.10% for loans under $625,500 and by 0.35% for loans greater than that. Upfront premiums will also increase by 0.75%. The FHA commissioner was quoted saying “These modest increases are one of several measures we are taking towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers.”

     The Up Front Mortgage Premium will increase from 1% to 1.75% of the base loan amount. This increase applies regardless of the amortization term or Loan to Value ratio and will continue to be permitted to roll into the financing. This change is effective for case numbers assigned on or after April 1, 2012. 

     The main purpose of the MIP is to aggregate money from FHA borrowers which is placed in the Mutual Mortgage Insurance Fund. This fund is supposed to equal 2 percent of FHA loans outstanding, but is now below the required level. HUD has reported to Congress that under this MIP structure, the Mutual Mortgage Insurance Fund will grow to the required 2 percent by 2014. Lenders face new charges, raising home financing costs at a time when the housing market remains sluggish. Higher mortgage costs result in borrowers qualifying for lower mortgages. Sellers will be impacted by the fee increase in the form of lower buyer demand and pressure to keep prices low.  

    Given this overview, and that the MIP increase will cost borrowers with a $200,000 mortgage, for example,  an additional $5,400 over a 30-year loan term - is this good , bad, or just necessary?  I can help you figure out the mortgage that makes sense for you. Click here for more information.