FHA MIP Rate and Duration Changes starting April 1, 2013 and June 3, 2013 By Bahman Davani, Member of CCAR s REALTOR /Lender Committee

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1 FHA MIP Rate and Duration Changes starting April 1, 2013 and June 3, 2013 By Bahman Davani, Member of CCAR s REALTOR /Lender Committee The following changes to FHA Mortgage Insurance Premiums (MIP) will take effect with the respective case number assignment dates, April 1, 2013 and June 3, These changes are big and may affect a borrower s affordability and/or ability to qualify for FHA financing. NOTE: These changes only affect FHA Loans with case numbers assigned after April 1, 2013 and has nothing to do with the sales closing date. Therefore, If you have a FHA case number assigned on March 31, but the sale is closed sometime in May or after, these changes will not affect your purchase. These MIP rate and duration changes include: FHA MIP POLICY CHANGE STARTING APRIL 1, 2013 Effective with FHA case numbers assigned on or after April 1, 2013 FHA Mortgage Insurance Premiums will increase. The increases in the annual MIP specified in this article apply to all mortgages insured under FHA s Single Family Mortgage Insurance Programs except: Streamline refinance transactions of existing FHA loans that were endorsed on or before May 31, 2009 (see ML ) For all SF Forward Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the Annual MIP will be.55% (55 bps), regardless of the base loan amount and the UFMIP will be decreased to (1 bps) 0.01% of the base loan amount. Title I (Home Improvement Loans): HUD "Title I" insures private lenders against loss on property improvement loans they make. HUD does not lend money for property improvements. Title I can be used in connection with a 203k Rehabilitation Mortgage. For additional information on HUD "Title I", please visit the HUD website at Home Equity Conversion Mortgages (HECM or Reverse Mortgage) Reverse mortgages are increasing in popularity with seniors who have equity in their homes and want to supplement their income. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage or HECM, and is only available through an FHA approved lender. Section 247 (Hawaiian Homelands)

2 FHA's mortgage insurance provides opportunities to low- and moderate-income Native Hawaiians to purchase a home on Hawaiian home lands. FHA insures loans made to native Hawaiians to purchase one- to four-family dwellings located on Hawaiian home lands. Section 248 (Indian Reservations) A family who purchases a home under this program can apply for financing through a FHA approved lending institution such as a bank, savings and loan, or a mortgage company. To quality, the borrower must meet standard FHA credit qualifications. An eligible borrower can receive approximately 97% financing. An eligible party can produce a gift for the down payment. Closing cost can be financed; covered by a gift, grant, or secondary financing; or paid by the seller without reduction in value. FHA case numbers assigned on or after April 1, 2013 mean BIG changes for borrowers and may affect their ability to qualify for FHA financing. These changes include: Current MIP Rate and Durations Up to New Rules effective with Case Numbers Item Changing Current Rules Up to Up to 6/2/2013 starting 4/1/2013 starting 6/3/2013 3/31/2013 Base Loan Amount < $625,500 MIP Rate MIP Duration MIP Rate MIP Duration > 15yr Term down payment < 5.00% 1.25% Cancelled at 78% LTV & % Loan Term Annual MIP (paid Monthly 5.00% < down payment < 10.00% 1.20% Cancelled at 78% LTV & % Loan Term with Mortgage Payment) 10.00% < down payment < 22% 1.20% Cancelled at 78% LTV & % 11 MIP Duration down payment >22.00% 1.20% % 11 < 15yr Term Annual MIP (paid Monthly with Mortgage Payment) MIP Duration down payment < 10.00% 0.60% Cancelled at 78% LTV 0.70% Loan Term 10.00% < down payment < 22% 0.35% Cancelled at 78% LTV 0.45% 11 down payment > 22.00% 0.00% No Annual MIP 0.45% 11

3 FHA MIP POLICY CHANGE STARTING JUNE 3, 2013 Effective with FHA case numbers assigned on or after June 3, 2013, FHA Mortgage Insurance Duration will change. The changes to the duration of the annual MIP as specified in this article are effective for all Single Family FHA programs for which FHA charges an annual MIP except: Title I (Home Improvement Loans): HUD "Title I" insures private lenders against loss on property improvement loans they make. HUD does not lend money for property improvements. Title I can be used in connection with a 203k Rehabilitation Mortgage. Home Equity Conversion Mortgages (HECM or Reverse Mortgage) Reverse mortgages are increasing in popularity with seniors who have equity in their homes and want to supplement their income. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage or HECM, and is only available through an FHA approved lender. Impact Analysis (Example): To better understand the impact of these changes on a borrower, let's use an example with following assumptions. Let's assume a borrower is purchasing a house for $200,000 with 3.5% down (LTV=97.5%), and getting a 30-year fixed FHA loan at 4%. Today, prior to April 1, 2013, The Monthly MIP Rate and Duration are as follow: Loan Amount = $200,000 (1-.035) = $200,000 * 0.965= $193,000, with Monthly Principal + Interest =$ Monthly MIP = (Loan Amount * MIP Rate for 3.5% down )/12 = $200,000 * 96.5% *1.25% /12 = $ The borrower is paying this Monthly MIP until the loan balance <= 78% of the original Loan Amount =.78* $193,000 = $150,540 Using a Mortgage Amortization Table or Calculator, we find out this happens after paying Monthly Mortgage Payment (Principal + Interest) for 124 Months (10 and 4 Months). So, Total MIP the borrower pays for the entire MIP duration would be $ * 124 = $24, After June 3, 2013, The new Monthly MIP Rate and Duration would be as follow: Loan Amount = $200,000 (1-.035) = $200,000 * 0.965= $193,000, with Monthly Principal + Interest =$ Monthly MIP = (Loan Amount * MIP Rate for 3.5% down )/12 = $200,000 * 96.5% *1.35% /12 = $

4 Increase Monthly MIP In the above example, This is an increase of $16.09 = $ $ MIP per month. Decrease Affordability In the above example, additional Monthly MIP of $16.09 for 30 years translates into getting a loan of $189,630 (with 4% Interest Rate) to have a monthly payment and interest of $ =$ $ If the borrower were eligible or could afford to purchaser a house at $200,000 (Loan $ 193,300), Now with this additional MIP he/she is eligible or could afford to get a loan for $189,630 (purchase a house with $196,507 =$189,630/.965) to have the same Monthly payment of Principal + Interest + MIP. This is decrease affordability of $3,493 (1.75%) Increase Total Monthly MIP The borrower will be paying this Monthly MIP for the entire loan term which is 30 years or 360 Monthly Payments. Therefore, Total MIP the borrower pays for the entire MIP duration would be $ * 360 = $78, This is an increase of $53, = $78, $24, total MIP for the entire loan term. A summary of these results are shown in Figure 1.

5 Assumption: purchasing a house at $200,000 with 3.5% down (LTV=97.5%), and getting a 30-year fixed FHA loan at 4%.Interest Rate. Legend: Series 1: with FHA case numbers assigned on or before April 1, 2013, Total Monthly MIP would be paid 124 Months * $201.04/Month= $24,928 Series 2: with FHA case numbers assigned on or after April 1, 2013, AND before June 3, 2013: Total Additional (compare to Series 1) MIP paid is $ 1, = $16.09 * 124. This brings Total Monthly MIP to be paid = $26,923 Series 3: with FHA case numbers assigned on or after June 3, 2013: Total Additional (compare to Series 2) MIP paid is $51,242= ( )* This brings Total Monthly MIP to be paid = $78,165 For more information about these changes and changes related to the Base Loan Amount > $625,500, please visit HUD website at Mortgagee Letter Please contact CCAR s REALTOR /Lender Committee at realtorlender@ccar.net for questions regarding the new MIP Rates (Starting April 1, 2013) and MIP Duration (Starting June 3, 2013).