FHA Owie!!! The FHA has announced it will raise the annual premium on most new mortgages by 10 basis points, or by 0.10 percent. For jumbo loans, which are defined as $625,500 or more, the premium will go up by 5 basis points or 0.05 percent. Certain loans, such as the FHA streamline refinance, will be exempt from these changes.

FHA Owie!!!

1. FHA Mortgage Insurance Premiums are Going Up
When you use an FHA loan to buy a house, you are required to pay for mortgage insurance. There are two types of mortgage insurance premiums (MIPs) associated with these loans — the annual MIP, and the upfront MIP. A new rule for 2013 will bring higher premiums for borrowers using this government program.
The FHA has announced it will raise the annual premium on most new mortgages by 10 basis points, or by 0.10 percent. For jumbo loans, which are defined as $625,500 or more, the premium will go up by 5 basis points or 0.05 percent. Certain loans, such as the FHA streamline refinance, will be exempt from these changes.
Additionally, borrowers who use FHA loans will now be required to pay the annual MIP for the life of the loan. In the past, the annual premium could be canceled when the loan’s outstanding principal reached 78% of the original principal amount that was borrowed.
An internal review showed that the agency has been losing significant revenue because of this policy, while still retaining the risk of each loan through its entire life. So the policy is being changed. The new FHA rule for 2013 states that borrowers will have to continue paying the annual MIP for the “life of their mortgage loan.”

This new regulation will apply to FHA loans with case numbers assigned on or after April 1, 2013.
Refer to HUD Mortgagee Letter 2013-04 for more information.

2. Larger 5% Down Payment Required on FHA Loans above $625,500
For most FHA loans, the minimum down payment is 3.5% of the amount borrowed. This is what the borrower has to pay, in order to be approved for the program. It’s an appealing feature that attracts many borrowers to the program in the first place. A proposed new rule would raise the down-payment requirement for larger mortgages.
If enacted, this rule will apply to “jumbo” mortgages with original principal balances higher than $625,500. For a loan of that size, the borrower would be required to make a down payment of at least 5% of the amount borrowed. We expect to hear more on this subject within the next few days. FHA officials said they will release additional details in a forthcoming Federal Register Notice.

3. FHA Loans after Foreclosure: Three-Year Rule + Good Credit
This is not so much a new rule as a tighter enforcement of an existing rule. The Federal Housing Administration, and its parent organization the Department of Housing and Urban Development (HUD), have specific rules about using an FHA loan after a past foreclosure.
In short, the rule states that borrowers may be eligible for an FHA-insured mortgage “no sooner than three years after they have experienced a foreclosure.” But the borrower must have rebuilt his or her credit score since the foreclosure took place, and must meet all other requirements for an FHA loan. In other words, the three-year rule is only a minimum requirement.
An investigation found that some lenders were engaging in misleading advertising, by telling borrowers they could “automatically” qualify for FHA loans after the three-year mark. Officials state this is not true, and that borrowers with a previous foreclosure must be fully reviewed in accordance with current underwriting requirements. There is no “automatic” approval at the three-year mark.
It's no surprise that FHA will increase annual mortgage insurance premiums (paid monthly). The first increase goes into effect with case numbers issued April 1, 2013 and later.

30 year fixed with loan to values of 95% or lower will increase to 130 bps (from 120)
30 year fixed with loan to values greater than 95% will increase to 135 bps (from 125)
30 year fixed FHA Jumbos with loan to values of 95% or lower will increase to 150 bps (from 145)
30 year fixed FHA Jumbos with loan to values greater than 95% will increase to 155 bps (from 150)
15 year fixed with loan to value of 78.01% - 90% will increase to 45 bps (from 35)
15 year fixed with loan to values greater than 90% will increase to 70 bps (from 60)
15 year fixed FHA Jumbos with loan to values of 78.01% - 90% will increase to 70 bps (from 60)
15 year fixed FHA Jumbos with loan to values greater than 90% will increase to 95 bps (from 85)

We've been anticipating changes to how long mortgage insurance will remain on an FHA insured loan as well as increases to FHA's mortgage insurance premiums.

But wait... there's more!!

Effective on case numbers issued June 3, 2013 and later, 15 year fixed FHA mortgages with a loan to value of 78% or lower will have annual mortgage insurance of 45 bps. Currently these loans have zero annual mortgage insurance.
FHA streamlined refi's where the current FHA mortgage was endorsed prior to June 1, 2009 are exempt from this adjustment. These loans still qualify for reduced mortgage insurance premiums.
Per the mortgagee letter, this will be effective on case numbers issued June 3, 2013 and later, FHA insured mortgages will change when mortgage insurance can be terminated. Most FHA loans will have mortgage insurance for the term of the mortgage for loans with case numbers issued June 3, 2013 and later.
Here is a chart from HUD comparing "previous" (in effect now until the new regulation) and "new" (in effect with case numbers issued June 3, 2013 and later).

FHA Annual Premium Cancellation

If you are considering an FHA insured mortgage and you would like to have mortgage insurance premiums that one day drops from your payment - we only have a couple of months left to do so.