Update on Mortgage Insurance Cut: FHA to Allow Case Number Cancellation

Details and clarifications are now availablernfor lenders and borrowers regarding President Obama’s Thursday announcement ofrnreduced FHA mortgage insurance premiums (MIP).  In addition to fine-turning details aboutrneligibility, a Mortgagee Letter released by the Department of Housing and UrbanrnDevelopment this morning has some good news for borrowers currently in thernprocess of getting a loan. </p

According to the executive order announcedrnyesterday FHA will almost immediately cut .5 percent from the annual premiumrnfor the FHA backed loans with terms greater than 15yrs.  For most FHArnloans this will reduce the annual premium from 1.35 percent of the loan balancernto .85 percent.  Loans with balancesrnabove the loan limits in effect in most areas and with current MIP of 1.50 torn1.55 percent will see new premiums of 1.00 or 1.05 percent respectively. The upfront premium for all loans will remainrnunchanged at 1.75 percent.  </p

Borrowers withrnFHA Case Numbers issued on or after January 26 will be eligible for the newrnpremium rates.  However, today’s letter has goodrnnews for borrowers already in process of getting their FHA loan.   Lendersrnwill temporarily be allowed to cancel Case Numbers issued before that date.  Specifically the letter states:</p

“To allow mortgagees tornobtain the reduced annual MIP rates contained in this ML for loans in processrnwith active FHA Case Numbers, FHA will temporarily approve cancellationrnrequests for active FHA Case Numbers within 30 days of the effective date ofrnthis ML.</p

FHA will providernoperational details on case cancellations through FHA Info notifications and onrnFHA’s lender information page available at www.hud.gov/lenders.”</p

“Our current reading on this is that ANY case number for a loan in process will have a 30 day window beginning on January 26th in which to cancel,” notes MND’s Matt Graham.  “Unfortunately, if that proves to be the case, it would seem that FHA has unintentionally discouraged down new originations between now and then and set themselves up for an epic glut of originations as soon as the effective date hits.”</p

Forrnborrowers who have recently closed an FHA loan which has been funded there willrnbe no immediate recourse.  They will havernto wait the mandatory 210 day period  and have made six payments on their existing FHArnloan before refinancing through a streamline loan in order to secure the lowerrnMIP.</p

To reiterate, thernreduced premiums will be unavailable on loans with terms of 15 years orrnless (the annual MIP for those loans is already less than the new MIP amounts for 30yr loans).  Also, The reductions apply to streamline refinancing of existing FHA loansrnthat were endorsed on or before May 31, 2009 (these also have lower MIP already–.55–so no major slap in the face here). rnThe new MIP will not be available either for Section 247 loans which arernspecific to the Hawaiian Homelands.

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