February 11, 2013
A reader asks. “I read somewhere that the PMI will no longer drop off after 78% of the LTV is reached and will remain on the loan until full payment. Is this true?”
The FHA has indeed changed its rules concerning mortgage insurance premiums. We covered the FHA announcement in a recent post, but many borrowers or soon-to-be FHA loan applicants wonder if the new FHA loan rules for mortgage insurance apply to their loans. Let’s examine what the FHA has announced about mortgage insurance premiums. The changes are twofold–one is an increase in the MIP premiums, the other change has to do with mortgage insurance cancellation policy.
In a press release titled, “FHA Takes Additional Steps To Bolster Capital Reserves” the agency announced;
“FHA will increase its annual mortgage insurance premium (MIP) for most new mortgages by 10 basis points or by 0.10 percent. FHA will increase premiums on jumbo mortgages ($625,500 or larger) by 5 basis points or 0.05 percent, to the maximum authorized annual mortgage insurance premium. These premium increases exclude certain streamline refinance transactions.”
“FHA will also require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan. Commencing in 2001, FHA cancelled required MIP on loans when the outstanding principal balance reached 78 percent of the original principal balance.”
Elsewhere on the FHA official site, the following explanation for the change reads;
“FHA remains responsible for insuring 100 percent of the outstanding loan balance throughout the entire life of the loan, a term which often extends far beyond the cessation of these MIP payments. FHA’s Office of Risk Management and Regulatory Affairs estimates that the MMI Fund has foregone billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy. Therefore, FHA will once again collect premiums based upon the unpaid principal balance for the entire period for which FHA is entitled. This will permit FHA to retain significant revenue that is currently being forfeited prematurely.”
These changes take effect for new loans endorsed in April (MIP increases) and June (MIP for the lifetime of the loan) 2013. They do not affect loans endorsed before then. If you currently have an FHA mortgage you will not be affected by the changes as they have been described by the FHA in its most recent announcement, HUDNo.13-010.
Do you have questions about FHA mortgages? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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