We received word of this today...
WASHINGTON – Feb. 22, 2011 – Effective April 18, the average FHA-backed mortgage will cost new borrowers about $30 more per month. In a letter sent yesterday, Assistant Secretary for Housing/Federal Housing Commission David H. Stevens explained the change, which will increase the mortgage insurance premium (MIP) on all 30-year and 15-year loans by a quarter of a percentage point (.25).
The increase impacts FHA loans with a case number assigned on or after April 18, 2011.
According to Stevens, FHA must increase its Mutual Mortgage Insurance (MMI) fund reserves – a two percent capital reserve ratio – to comply with current law.
“The MMI fund has been below the two percent threshold in our last two annual actuarial reports to Congress,” Sevens says; and that at the current rate, MMI will not meet its mandated level until at least 2015. “Raising the annual premium will enable FHA to increase revenues … Based on current volume projections, the annual MIP increase would generate an additional $2.5 - $3 billion annually.”
Stevens defended the increase’s unveiling during a down real estate market by calling the quarter-point increase “a responsible step towards meeting the two percent threshold, while allowing FHA to remain the most cost-effective mortgage-insurance option for borrowers with lower incomes and lower downpayments.
“I understand the concerns of those in the industry about this increase,” he says. “While I do not expect all to agree, we have made these moves to protect FHA so that it can continue its vital mission.”
While the monthly payments on the average FHA loan will go up about $30, it shouldn’t impact closing costs. The upfront MIP remains unchanged at one percent.
To read the Department of Housing and Urban Development’s Mortgagee Letter explaining the change (PDF format), visit HUD’s website.
© 2011 Florida Realtors®
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