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HUD informed all lenders offering FHA loans that the automatic cancellation of mortgage insurance premiums will be rescinded and that any mortgage greater than 90 loan-to-value at time of origination (the overwhelming majority) would require mortgage insurance for the life of the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

Shawn Garrett, KIRO 7 News

Western Washington city named one of the safest in the country

One of the safest cities in the United States is in Western Washington, according to a report from moneygeek.com.
20 hours ago
People walk past the Pike Place Market, Seattle's top tourist destination on March 09, 2022 in Seat...
Julia Dallas, KIRO 7 News

Pike Place Market invites people to celebrate Black History Month at Black-owned businesses

Pike Place Market is inviting the public to celebrate Black History Month by exploring the market’s Black-owned businesses.
2 days ago
Renton fuel spill...
Michael Simeona

Fuel spill causes traffic issues on NB I-405 in Renton

All lanes of northbound I-405 in Renton at Coal Creek Pwky are blocked Sunday morning due to a previous collision that caused a fuel spill.
2 months ago
Seattle weather Eliott Bay...
Bill Kaczaraba

The beauty of Seattle weather emerges from the cloudy skies

Seattle is finally getting a break from all this wintry weather, even though winter itself is a couple of weeks away.
2 months ago
...
No Author

EXPIRED: Enter to Win a $400 Seahawks Pro Shop Gift Card!

It’s giving SZN! The Seattle Seahawks, KIRO Newsradio, and Seattle Sports have your chance to win a $400 Seahawks Pro Shop in-store gift card.
2 months ago
(KIRO 7)...
KIRO 7 News Staff

Troopers searching for suspect after 74-year-old woman carjacked in Kent

The Washington State Patrol is searching for a suspected carjacker who stole a 74-year-old woman’s car after he caused a four-car collision in Kent on Saturday.
3 months ago

Sponsored Articles

safety from crime...

As crime increases, our safety measures must too

It's easy to be accused of fearmongering regarding crime, but Seattle residents might have good reason to be concerned for their safety.
Comcast Ready for Business Fund...
Ilona Lohrey | President and CEO, GSBA

GSBA is closing the disparity gap with Ready for Business Fund

GSBA, Comcast, and other partners are working to address disparities in access to financial resources with the Ready for Business fund.
SHIBA WA...

Medicare open enrollment is here and SHIBA can help!

The SHIBA program – part of the Office of the Insurance Commissioner – is ready to help with your Medicare open enrollment decisions.
Lake Washington Windows...

Choosing Best Windows for Your Home

Lake Washington Windows and Doors is a local window dealer offering the exclusive Leak Armor installation.
Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
FHA no longer will drop mortgage insurance premiums