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FHA Raising Annual Premiums

Housing agency moving to bolster capital

Jan. 30, 2013

By Mortgage Daily staff

As part of its plan to bolster its capital reserves, the Federal Housing Administration is raising annual mortgage insurance premiums, with jumbo loans taking an extra hit. FHA is also reversing a policy to eliminate premiums once a loan reaches a specified equity level.

On most newly endorsed FHA loans, the annual mortgage insurance premium will increase by 10 basis points. Some streamline refinance transactions are excluded from the increase.

For loans of at least $625,000, except on qualified streamline refinances, the premium is being raised by an additional 5 BPS.

In February 2012, HUD raised premiums on jumbo loans by 35 BPS.

Mortgagee Letter 12-4 issued by the Department of Housing and Urban Development in March 2012 indicated that non-jumbo 15-year loans had annual premiums of 120 BPS. Mortgages in excess of $599,000 had an additional 25 BPS, while loans with longer terms had an another 35 BPS, and loan-to-value ratios above 90 percent had a 60-basis-point premium.

A 2001 requirement that annual M.I. premiums be terminated at 78 percent LTV is being reversed, and most FHA borrowers will be required to continue paying annual premiums for the life of the loan. The move is expected to enable FHA to retain significant revenue that is says is currently being forfeited prematurely.

"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," Wednesday's announcement explained.

The new premiums were among several changes announced today by HUD that are intended to bolster the Mutual Mortgage Insurance Fund's capital reserves.

FHA is expected to announce the changes in the coming days.

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