Getting it Straight

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

We have all been made aware that many new changes will take effect beginning October 1, 2008 where the FHA mortgage insurance program is concerned. There were several pieces of new legislation that was signed into law in July, 2008 which will have a large impact on how we now do business where the FHA stuff is concerned.

Beginning very recently, we have seen a change in how we calculate the UFMIP when FHA went to the Risk Based pricing principal. This information was outlined in Mortgagee Letter 2008-16. Further changes have since been anticipated including the changes to required down payment on the buyers behalf and the elimination of seller funded down payment assistance as a result of the new law. These changes have recently been published in Mortgagee Letters 2008-22 & 2008-23 with some unexpected twist.

First and quite simply, ML 2008-22 rescinds ML 2008-16 where the risk based premiums are concerned, implementing a flat across the board UFMIP and monthly MIP factors which 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:

If the LTV is <95 the Annual for Loans >15 years is 50, the LTV is <90 and the Annual for Loans < 15 years is None.

If the LTV is >95 the Annual for Loans >15 years is 55, the LTV is >90 and the Annual for Loans < 15 years is 25.

• FHASecure (delinquent mortgagors):

If the LTV is <95 the Annual (all loan terms) is 50

If the LTV is >95 the Annual (all loan terms) is 50

Next, ML letter 2008-23 implements the revised down payment and maximum mortgage requirements where FHA mortgage insurance is concerned. FHA will now require a minimum down payment of 3.5% from all borrowers on all transaction types (see information for specialty programs such as the 203k which may vary) without consideration to borrower closing costs or varying LTV’s. That’s right, forget all that you know about calculating the maximum mortgage.

Additionally, refinance transactions will now be limited to 100% LTV including the UFMIP which for the most part will allow a 98.25% LTV where the base loan amount is concerned (FHA Secure has different requirements). Keep in mind however that depending on the UFMIP for each product the LTV where the base loan is concerned may vary. Lets also not forget about using the new 92900LT.

For most seasoned DE underwriters the changes will be embraces as they always have, as a normal course of business. But for new DE’s and support staff alike, the new changes will cause even greater confusion when considering that they may still be in a learning curve. My suggestion, be careful and review you work twice.

I would also like to mention the fact that new legislation is scheduled for mark up this week by the House Financial Services Committee which will continue to allow seller funded DPA and possibly rescind mortgagee letter 2008-22, again allowing Risk Based Premiums where the UFMIP and Monthly MIP is concerned (see HR 6694 for more information). So its possible to see changes to new changes as well.

For those of you that are having difficulty interpreting the changes, I strongly suggest training. FHA Online U will have all of the changes effective in class materials beginning October 1, 2008 and will allow ample time for discussion of the changes with each training course to decipher the new policies. Again everyone, keep your eye out for new mortgagee letters because as I stated above, the new guidelines seem to keep coming not to mention changing. Happy Underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.