Effects of Mortgagee Letter 2010-28

The recently released HUD Mortgagee Letter 2010-28 has generated not only quite a buzz in the industry, but also a good deal of confusion over the actual stipulations. Here is a basic recap of the Letter to help you navigate the change.

The Facts

The new law allows HUD to increase the amount of the annual Mortgage Insurance Premium (“MIP”) from 0.5 percent to 1.5 percent for loans at 95% or less LTV. The allowable premium changes from 0.55 percent to 1.55 percent for loans over 95% LTV.

However, HUD is not increasing premiums up to these allowed amounts at this time. Their letter states that, effective for all case numbers assigned on October 4 and later will be charged .85 percent or .90 percent, depending upon the LTV.

On the flip side, FHA will greatly lower the Upfront Mortgage Insurance Premium (“UFMIP”) on October 4 from 2.25 percent to 1.0 percent for purchase and refinance transactions.

Annual premiums for Home Equity Conversion Mortgages (“HECMs”) are increasing to 1.25 percent while the upfront premium is unchanged; cancellation policies for MIP are also unchanged.

What Does It All Mean?

The simple fact is that closing costs for FHA loans assigned on or after October 4 will be dramatically reduced by the new, lower UFMIP.

The upfront savings will be somewhat offset by the higher annual premium paid monthly. However, those borrowers who want to roll the UFMIP into their loan amount will enjoy having more equity in their homes now than if they had purchased prior to the change.

FHA loans are still a great deal, especially with the upcoming change to the UFMIP which should help to alleviate client resistance to FHA financing. If you or your buyers have any questions about FHA financing, please do not hesitate to ask me.