A Return to Policy

Written By: Bonnie Wilt-Hild

I know this statement will be relatively unpopular but I am going to say it anyway, thank goodness for the return of the FHA mortgage insurance program” In a HUD Public Affairs publication, No. 12-037, issued on February 27, 2012, HUD announced its intentions of again raising the UFMIP and MMI premiums to not only protect their capital reserves but also to encourage the return of private capital into the residential mortgage market. In short everyone where your upper income borrowers are concerned it simply makes more sense to place them into conventional loan programs with traditional private mortgage insurance where the increases will have a relatively low impact from a dollar and cent’s standpoint for low to moderate income borrowers purchasing affordable housing. The announcement stated the following;

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“February 27, 2012
WASHINGTON – As part of ongoing efforts to encourage the return of private capital in the residential mortgage market and strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund, Acting FHA Commissioner Carol Galante today announced a new premium structure for FHA-insured single family mortgage loans. FHA will increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount. Upfront premiums (UFMIP) will also increase by 0.75 percent. “
“After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” said Galante. “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.”

I know a lot of you are thinking that these changes will price many individuals out of the market because of the impact the increased monthly MI will have on many borrowers who are borrowing at the upper end of the statutory loan limits and you are correct. Monthly MI for loan amounts greater than $625000 will now sit at 1.50% which equate to a monthly MI fee for those borrowers of $781.25 monthly on a loan amount of $625000.00. For the low to moderate income borrower however it is quite affordable at an increase of only .10% and honestly that that this program was developed for and I, as an underwriter who has been underwriting the program for 20 some odd year now am grateful for the changes.

You have all heard me complain of the difficulties involved in applying underwriting guidelines designed for the lower income segment of the population to upper income borrowers. Quite frankly, upper income borrowers should be well qualified under every circumstance. To allow a flexible commonsense approach where underwriting is concerned for a borrower who is borrowing $729500.00 is ridiculous. Someone who is purchasing a property at almost three quarters of million dollars should be able to put at least 10% down, have acceptable ratio’s, outstanding credit and at least 6 months PITI in reserves, if they don’t they need to scale back
Because they are not at all ready for a monthly mortgage payment of $5659.00 which is what the PITI and MI would run on that kind of a mortgage. Lower income borrowers however simply present significantly less risk from both a default and MMI claim perspective. Bottom line is low to median priced homes do not lose value as quickly as upper priced homes, monthly mortgage payments for homes in these price range are often comparable to market rental rates which result in little or no increase in housing expense and the amount of a claim paid on such a property is significantly less than a claim paid on a mortgage of $729500.00.

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In closing I would like to say that when the FHA mortgage insurance program was designed it was designed for the low to moderate income borrower, not as a federally subsides mortgage insurance program to replace all existing mortgage programs for all class of borrowers when they don’t qualify for other mortgage programs, so I am happy that the program is being returned to the population it was designed for. In addition, I am hoping that moving forward, as risk decreases where the program is concerned the overzealous investor overlays that were implemented to thwart program abuse will also go away so we can get back to business as usual. Have a great week.


About The Author

Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.