FHA no longer will drop mortgage insurance premiums

Feb 21, 2013, 8:25 AM | Updated: Mar 4, 2016, 5:53 am

Andrew Cuomo, then the U.S. Housing and Urban Development Secretary, said it was a big day for the nation’s homebuyers.

The Federal Housing Administration’s Mutual Mortgage Insurance Fund (MMIF) had experienced an unprecedented financial turnaround, allowing borrowers who had reached a 22 percent equity stake in their homes an opportunity to drop their mortgage insurance “just like the conventional markets,” Cuomo told a group of reporters.

That announcement, made 13 years ago, was a big deal because FHA mortgage insurance previously had to be paid for the entire term of the loan, regardless of how much equity a borrower had in the property. The move saved a borrower with a $100,000 loan approximately $1,500 over the life of the loan.

As of June 3, 2013, however, most FHA loans will again require mortgage insurance for the life of the loan. In a recent letter, HUD informed all lenders offering FHA loans that the automatic cancellation of mortgage insurance premiums will be rescinded and that any mortgage greater than 90 loan-to-value at time of origination (the overwhelming majority) would require mortgage insurance for the life of the loan.

If the FHA loan is originated at an amount equal to or less than 90 LTV, the mortgage insurance must remain for 11 years.

FHA also will scrutinize credit scores and debt ratios. As of Apri11, 2013, HUD will require a “manual” underwriter review if the credit score is less than 620. This means that even if FHA’s Automated Underwriting System (AUS) approves an application, an underwriter may reverse this approval with a closer review of the data.

In addition, if the total qualifying ratio, often referred to as “debt-to-income” ratio, is greater than 43 percent of the borrower’s income, a manual underwrite must be obtained regardless of AUS findings.

Why? The once healthy MMIF now is struggling to stay afloat. In fact, an audit, conducted by the Integrated Financial Engineering Inc., concluded that FHA had reserves of $30.4 billion, but will experience a net loss of $46.7 billion for 2012 on existing loans in its primary account.

The agency entered fiscal year 2013 at negative $16.3 billion. By comparison, the FHA MMI Fund had a negative economic value of $2.6 billion in 1990 before rebounding later in the decade.

“These new rules are intended to ensure that borrowers have sufficient income or assets to repay a mortgage loan,” said Mark Palmer, vice president of loan production for Seattle Mortgage. “Since these rules go into effect for applications received on April 1, those seeking FHA financing have until March 31 to get their application in place under the current rules.”

Mortgage insurance – which the Federal Housing Administration labels mortgage protection insurance – is commonly called private mortgage insurance (PMI) by conventional lenders. Most banks, credit unions, savings and loans and other lending institutions require this coverage for people borrowing more than 80 percent of the purchase price of the home.

Because a lack of a substantial down payment has made some borrowers more of a risk than other conventional buyers, low down-payment buyers must obtain an insurance policy to make sure the lender gets his payments. If the borrower defaults on the loan, and the house is not sold for enough money to repay the bank, mortgage insurance will supply the difference.

The cost of mortgage insurance varies depending upon the amount borrowed and when the premiums are paid.

Palmer said that borrowers with loans not insured by FHA could still request to have their mortgage insurance payments eliminated when they reached the 22 percent equity threshold.

“However, it’s not automatic,” Palmer said of dropping the payments. “The borrower must request it be removed. And, depending on when they obtained the mortgage insurance, there is a minimum amount of the loan term that needs to be fulfilled. At this time, the minimum is generally 24 months.”

Private mortgage insurance is often confused with mortgage life insurance. PMI is required by lenders, while mortgage life is an option for the buyer.

Typically, a mortgage life policy pays off the home if the buyer dies or is disabled. Often, the goals of mortgage life can be accomplished by purchasing a term life insurance plan. This option can be less expensive and stays with the individual, not the loan. Many people think the coverage follows the borrower, but it only follows the loan.

Mortgage life is still available if you did not accept coverage at the time you took out your loan or refinanced it. Ask the lender who wrote your loan, or the insurance agent who handles your homeowners insurance, for details.

Tom Kelly’s new novel “Cold Crossover” is now available in print at bookstores everywhere and in both print and Ebook form on Amazon.com. Follow real estate agent and former basketball coach Ernie Creekmore as investigates the disappearance of his star player on a late-night ferry boat. Check out the national reviews and put “Cold Crossover” on your list.

Uncategorized

Ferry cancellations...
KIRO 7 News Staff

Washington State Ferries announce alternate Sunday schedules

Due to severe crewing shortages, the Washington State Ferries announced plans to operate an alternate service schedule on Sunday.
12 days ago
President Joe Biden speaks about COVID-19 vaccinations. (AP Photo/Susan Walsh)...
Alex Overall

Todd Herman Show Notes: 10.8.2021

Read and Catch up on the latest show notes brought to you by the Todd Herman Show on AM 770 KTTH
14 days ago
This image released by National Geographic shows Dr. Anthony Fauci at the NIH in Bethesda, Md., dur...
Alex Overall

Todd Herman Show Notes: 9.21.2021

Read and Watch the latest sources and news media related to the Todd Herman Show on AM 770 KTTH.
1 month ago
FILE - In this Wednesday, June 23, 2021, file photo, New York Gov. Andrew Cuomo speaks during a new...
Alex Overall

Todd Herman Show 7.28.2021

Stay up to date on all the top stories here on the Todd Herman Show on 770am KTTH
3 months ago
Alex Overall

Todd Herman Show Notes: 6.11.2021

Catch up on Todd Herman's source material used for the show right here.
4 months ago
shooting...
Stephanie Klein

Two men shot Saturday in Seattle

Police say two people were shot Saturday evening in Seattle's Beacon Hill neighborhood.
5 months ago

Sponsored Articles

...

Medicare open enrollment for 2022 starts Oct. 15 and SHIBA can help!

Washington State Office of the Insurance Commissioner SPONSORED — Medicare’s Open Enrollment Period, also called the Annual Election Period, is Oct. 15 to Dec. 7. During this time, people enrolled in Medicare can: Switch from Original Medicare to a Medicare Advantage plan and vice versa. Join, drop or switch a Part D prescription drug plan, […]
...

How to Have a Stress-Free Real Estate Experience

The real estate industry has adapted and sellers are taking full advantage of new real estate models. One of which is Every Door Real Estate.
...
IQ Air

How Poor Air Quality Is Affecting Our Future Athletes

You cannot control your child’s breathing environment 100% of the time, but you can make a huge impact.
...
Swedish Health Services

Special Coverage: National Prostate Cancer Awareness Month

There are a wide variety of treatment options available for men with prostate cancer. The most technologically advanced treatment option in the Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform.
...
Marysville Police Department

Police Opportunities in a Growing, Supportive Washington Community

Marysville PD is looking for both lateral and entry level officers. Begin or continue your career in law enforcement for a growing, supportive community.
...
Comcast

Small, Minority-Owned Businesses in King County and Pierce County Can Now Apply For $10,000 Relief Grants Through Comcast RISE

Businesses in King County and Pierce County can apply beginning on October 1, 2021, at www.ComcastRISE.com for a chance to receive a $10,000 relief grant.
FHA no longer will drop mortgage insurance premiums