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FHA Loans To Change Again in April 2013

Another FHA Facelift!

Another FHA Facelift!

Orange County, CA – The Federal Housing Administration (FHA) promotes home ownership through a number of loan programs, designed to make it easier for Americans to acquire a home. Low down payment requirements and flexible eligibility requirements have made the FHA loan very popular since 2006 when conventional lenders began tightening their belts.  This corresponded with a sharp downturn in the economy. Foreclosures and short sales began surfacing at record levels. Since FHA loans are home loans insured by the Federal Housing Administration, they were responsible to cover losses incurred by lenders. Not surprisingly, the FHA reserve fund was depleted faster than anticipated. Despite repeated attempts to shore up the fund by collecting more money, the FHA reserve fund has continued to decline. In response to increased government obligations and alarm, the FHA announced in Mortgagee Letter 2013-04 that it is once again making some big changes. Coming on or after April 1, 2013 are revisions to the assessing period, cancellation of exemption from the annual Mortgage Insurance Premium (MIP), and increases to the annual premium rate.   

 The FHA is revising the period for assessing the annual MIP, which now must be paid for at least 11 years.  In situations where the loan-to-value ratio (LTV) is less than or equal to 90 percent, the annual MIP will now be assessed either until the end of the mortgage term or for the first 11 years, which ever occurs first.  In cases where the LTV is more than 90 percent, it is assessed either until the end of the term or for the first 30 years.

Making even bigger headlines is that mortgage insurance is no longer automatically removed when the outstanding principles balance of a loan reaches 78 percent of the original balance. Home-owners are instead required to maintain principal payments for at least 11 years.  Loans of less than 15 years and smaller than 78 percent LTV were previously exempt from MIP altogether. This category of borrowers are now required to pay MIP for 11 years, similar to other categories.

There are also big changes to mortgage insurance premiums, with most mortgages getting an increase of 10 basis points or 0.10 percent.  Mortgages with a balance of $625,000 or more will increase by 5 basis points or 0.05 percent.  In situations where the term of a mortgage is less than or equal to 15 years and the LTV is less than or equal to 78 percent, the new MIP is now 45 basis points instead of no basis points.  All of these changes are designed to help reduce the record high level of defaults at the FHA and boost its ailing reserve fund.

Should you have questions about the recent changes or how they may impact you please contact me.

 

Scott Storace

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Comments:

    • Kelly Says:
    • February 21st, 2013

    The above changes are only for new fha cases assigned and settled after April 1 , correct? My husband and I bought our first home using an fha loan this past year. The settlement date was in the beginning of august, 2012.

    • Scott Storace Says:
    • February 21st, 2013

    That’s correct. FHA loans that receive a FHA case number prior to April 1, 2013 are subject to the current FHA guidelines. They will not be affected by the coming changes. Only new FHA loans with case numbers assigned on or after April 1, 2013 will be impacted.

    • Joanna Says:
    • March 28th, 2013

    so if i geta case number on 4/1/13 that means i will fall in the guide lines.

    • Scott Storace Says:
    • March 28th, 2013

    That’s correct Joanna. The last day to get a case number and have access to the current guidelines is Sunday 3/31/13. That’s assuming someone is working on Easter. On Monday April 1st it rolls over to the new guidelines.