Not So Fast: HUD Rescinds MI Premium Cut

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As you may have heard in various media reports, HUD issued Mortgagee Letter 2017-07 on Friday, January 20, rescinding the annual Mortgage Insurance Premium (MIP) cuts announced in Mortgagee Letter 2017-01. While there has been much news and opinion analysis on this story, the only effect on your daily business is the annual MIP will not change effective with closings on or after January 27.

The actual impact on the mortgage market is likely very minimal, with the most likely outcome being that some loans on which disclosures were sent to borrowers between January 10th and 20th – showing the reduced premium – will have to be re-disclosed. Before re-disclosing, I suggest doing a quick double-check to ensure that the change has been applied throughout the loan file, including the APR on the Loan Estimate. It remains to be seen whether the new administration will decide to move forward with any premium cuts in the months to come.

Peter

FHA Lowers Mortgage Insurance Premiums Again

OLYMPUS DIGITAL CAMERAToday, HUD released Mortgagee Letter 2017-01, announcing a reduction in the FHA annual mortgage insurance premium by 20-25 basis points across the board and eliminating MI surcharges on loans over $625,500 in high-cost areas. This announcement, sure to please originators across the country, comes on the heels of the FHA Mutual Mortgage Insurance Fund (MMIF) once again reaching its statutory-mandated reserve of 2% in 2016.

The premium cut goes into effect with closings/disbursements on or after January 27, 2017. This is a slight departure from typical FHA policy changes which are usually implemented by the date the case number is obtained. Note, the UPFRONT MI Premium (UFMIP) is not changing and remains at 1.75% for forward mortgages.

The new annual premiums, effective January 27th, are highlighted below.

Happy originating!

Peter

More FHA MIP Hikes in the Works

It appears as though FHA is poised to increase the annual premium on new applications for FHA insurance starting in January.  Look for a Mortgagee Letter to be issued soon that increases the annual MIP by at least 10 basis points and eliminates the expiration of premiums on certain loans.  I’ll be sure to post an update when final details are known, so stay tuned.

That being said, increasing premiums across the board is NOT the answer.  As FHA gets more expensive, it just causes more borrowers to self-select out of the FHA program and into a comparable conventional program.  As it stands today, 95-97% LTV programs on the conventional side are already less expensive for borrowers with good FICO scores who elect the monthly PMI option, AND conventional MI does not have an up-front payment (outside of split-premium).  There is no incentive for low-risk borrowers to select a 30-year FHA loan, and maybe that’s as HUD wants it.  We know they’ve been trying to pare-down their portfolio.

Unfortunately, HUD needs to face the truth and admit that it simply does not have the luxury of focusing only on its core clientele.  To do so in the current context of “one size fits all” MI premiums is nothing short of suicide because it ensures deterioration in FHA’s credit quality (which has been quite high for the last few years).  A deterioration in credit quality leads to a higher default rate, which leads to more claims paid, which leads to another hike in premiums, and so forth and so on.

It is time for HUD to go back to 2008 and re-institute the risk-based MI premium that was stopped with the passage of the Housing and Economic Recovery Act.  Insurers can’t afford to pretend that everyone is equal in terms of risk; when someone with a perfect driving history purchases auto insurance, they aren’t charged the same premium as someone with two accidents and a DUI.  Mortgage insurance is no different.  It’s time for reality to set-in at the Federal Housing Administration, or endless taxpayer-funded bailouts are a virtual certainty.

HUD Rescinds "Disputed Item" Guidance for FHA-insured Mortgages

Last week, the Department of Housing and Urban Development issued Mortgagee Letter 2012-10 which rescinded the guidance that was published March 1 in ML 2012-03.  I wrote about those updates as part of a larger post dealing with the MIP changes that were front-and-center at the time.

The guidelines, which many complained (rightfully so, in my opinion) would add undue stress to FHA’s targeted demographics and further strain the housing market, were scheduled to go into effect on July 1.   They would have required borrowers with disputed credit accounts in excess of $1,500 to resolve all of the disputes before a loan could be eligible for FHA insurance.  Further, the guidelines would have required all collection accounts to be paid off if the aggregate balance of the accounts exceeded $1,000.  As you’ve likely seen in your origination business, a healthy number of applicants for FHA-insured mortgages show some older, unresolved collections exceeding that $1,000 amount.

This is welcome news to those of us who work with borrowers using the FHA product.  Yes, the volume of FHA-insured purchase and credit-qualifying refinance loans has dropped since the recent MIP changes took effect, but HUD still captures a large market share, and artificially limiting homeownership opportunities for creditworthy borrowers with older blemishes on their bureaus is just bad policy.  It’s refreshing that HUD came to that realization before July 1and took these actions, although we do expect them to “provide further clarification” on disputes and collection accounts again in the future.

The full mortgagee letter detailing the credit guidance rescission (but leaving other guidance intact) can be found here.

Happy originating!

FHA STREAMLINE REFINANCE MIP UPDATE

This morning, HUD released mortgagee letter 12-04, formally announcing the MIP changes discussed in our last blog post.  There is one addition that I need to tell you about, and it only deals with FHA STREAMLINE REFINANCES.

EFFECTIVE WITH FHA CASE NUMBERS ASSIGNED ON OR AFTER JUNE 11, 2012:

If you are originating a streamline refinance and paying off an existing FHA loan that was endorsed for insurance on or prior to May 31, 2009, the UFMIP on the new loan will decrease to 0.01% of the new base loan amount, and the annual MIP (paid monthly) will decrease to 0.55%.  Some industry groups have already lodged an inquiry with HUD as to why the May 31, 2009, date was chosen.  If we get an answer to that question, I’ll be sure to let you know. 

Additionally, the effective date for the increases to the up-front and annual MIP that was discussed in our last blog post has been changed.  The first increase for all loans will now be effective with case numbers assigned on or after APRIL 9, 2012, and the additional increase for high-balance FHA loans will now be effective with case numbers assigned on or after JUNE 11, 2012.

Let’s get the word out!  Pick up the phones, close some loans, and (as always) happy originating!

IMPORTANT – Upcoming FHA MIP and Underwriting Changes

MIP Changes

In order to continue stabilizing the mutual mortgage insurance fund, and due to requirements in the payroll tax extension bill passed at the end of 2011, HUD has announced the following MIP increases for forward mortgages:

Effective with case numbers assigned on or after APRIL 1, 2012:

1)      The up-front mortgage insurance premium will increase from 1.00% to 1.75%, regardless of loan term

2)      The annual premium will increase by 0.10% for all loans.  A summary of the new premiums is below:

Loan terms greater than 15 years Loan terms of 15 years or less
LTV > 95%:    currently 1.15%   NEW: 1.25% LTV > 90%:     currently 0.50%  NEW: 0.60%
LTV </= 95%: currently 1.10%  NEW: 1.20% LTV </= 90%: currently 0.25%  NEW: 0.35%

3)      Additionally, the annual MIP will increase by an additional 0.25% for loans over $625,500 effective with case numbers assigned on or after JUNE 1, 2012.

Underwriting Changes

On March 1, 2012, HUD published mortgagee letter 2012-3 (dated February 28th), containing some significant underwriting changes regarding self-employed borrowers, disputed credit accounts and identity-of-interest (non-arms length) transactions.  A copy of the mortgagee letter can be found here.  The underwriting changes detailed in this letter are effective with case numbers assigned on or after APRIL 1, 2012, so plan accordingly.  As usual, these updates do not apply to non-credit qualifying streamline refinances or HECM (reverse) mortgages. 

Friendly reminder: FHA requires mortgagees to have an active loan application for both the borrower and property before requesting a case number (see Mortgagee Letter 2011-10).

SELF EMPLOYED BORROWERS

1)      Self-employed borrowers MUST show a year-to-date P&L (Profit-and-Loss) and Balance Sheet if more than one calendar quarter has elapsed since the filing of the most recent tax return (annual or fiscal-year).  This requirement applies regardless if the loan is AUS-approved or not.

2)      If the income used to qualify the borrower exceeds the average of the previous two years’ tax returns, an audited P&L or a signed quarterly tax return obtained from the IRS must also be provided.  Again, this applies regardless of AUS decision.

HANDLING OF DISPUTED CREDIT ACCOUNTS, COLLECTIONS AND PUBLIC RECORDS

1)      Disputed accounts will no longer trigger an automatic review by an underwriter if BOTH of the following requirements are satisfied:

     a.   The outstanding balance of all disputed accounts is less than $1,000
     b.   Two years have elapsed since the date of last activity listed on the credit report for all disputed accounts

2)      If the aggregate dollar amount of disputed accounts exceeds $1,000, all of the disputed accounts must be resolved.  In other words, the accounts must be paid in full at or before closing or a payment agreement must be in effect on the account(s) and the borrower must show that three months of payments on the payment agreement(s) has been made in a timely manner.

3)      Disputed accounts resulting from identity theft or fraudulent or unauthorized use of credit cards can be excluded from the $1,000 limit if the borrower provides documentation of the circumstances (a police report, for example). The lender must also include documentation that the account(s) in question are verified as not the borrower’s debt in the final case file.

4)      If the aggregate total of collection accounts exceeds $1,000, ALL collection accounts must be resolved (paid in full or a payment agreement established with a minimum of three months of timely payments).  If the total of collection accounts is less than $1,000, they are not required to be resolved/paid.

5)      FHA continues to require all judgments to be satisfied or an acceptable payment agreement established (with 3 months of on-time payments) before a loan can be insured.

IDENTITY-OF-INTEREST TRANSACTIONS

The  definition of “family member” has been expanded to include brothers, sisters, step-brothers, step-sisters, uncles and aunts.

FHA’s Loss is MBA’s Gain

Peter Citera - Real Estate InstituteIt was announced yesterday that current FHA Chief, David Stevens, will leave the agency at the end of this month to head the Mortgage Bankers Association.  Those of you that have been following the goings-on in the industry since the subprime debacle (and who hasn’t) will know that David is a strong and competent leader who has successfully guided the FHA through the toughest market in history.  A huge increase in market-share coupled with a huge increase in default rate is a challenge that no sane mortgage lending executive would want to face, yet David tackled the Agency’s problems head-on.  While the dragon is not yet slain – FHA still has some substantial money issues with the mutual mortgage insurance fund – the program is certainly on much more sound footing now than when Stevens took over in 2009, and he deserves credit for righting the ship.

Yes, there have been bumps in the road.  Those of you who have followed me throughout 2010 know that I believe that the MIP changes, though necessary, could have been better handled.  There was no sound logic to the April 2010 decision to raise the upfront MIP to 2.25% in a declining market rife with foreclosures, especially considering that the UFMIP is nearly always financed and, at the time of the policy change, the purchase market was artificially inflated due to the homebuyer tax credit.  It was a knee-jerk reaction to a huge problem that was not well thought out, proving that crisis decisions do not generally breed good policy.

The October reduction in the UFMIP, coupled with an increase in the annual MI, was the logical solution from the start as it generates much more predictable revenue growth and has the added benefit of not raising the size of an insurance payout upon borrower default.  Be that as it may, at the end of the day, it is through Stevens’ leadership that the FHA has managed to remain well-positioned as the product of choice in a still-uncertain mortgage lending world.  I wish him the best as he assumes the position of industry advocate at the MBA.  Godspeed, David – now more than ever the industry needs a well-respected voice advocating for prudence, temperance and tact in an increasingly restrictive regulatory environment.