FHA will Discontinue Risk Based Pricing
September 4, 2008
As of October 1, 2008, the Federal Housing Administration (FHA) will discontinue risk-based premium pricing on their loan guarantee programs for the length of one year. This will most likely effect the FHA loans in the Tulsa Mortgage industry.
The FHA announced a new pricing structure in which borrowers desiring an FHA guaranteed loan will now pay an upfront premium of 1.75%, no matter what type of credit standing they may have. In July, the upfront premium was at 1.5% which in essence an additional $375 for a $150,000 mortgage loan, which is 25 basis points over the percentage in July.
For those wishing to refinance under the FHA Secure and Hope for Homeowners program, the new plan will have borrowers paying a 3% upfront premium which is a 75 basis point increase. This could amount to $1,125 for a $150,000 mortgage loan.
In July, the Federal Housing Administration was using a sliding scale for borrowers in that those with good credit could pay as less as 1.25% for an upfront premium and those that were at higher risk could end up paying 2.25%.
Lawmakers were not too thrilled about this system and questioned the fairness. However, the Housing and Economic Recovery Act of 2008 included a provision that requires the Federal Housing Administration to suspend this practice for one year. The bill known as HR 3221, did more than suspend the practice implemented in July but also raised the minimum down payment for FHA backed loans to 3.5% and forbid any seller funded down payment assistance programs after October 1.
In order to comply with Congress, Brian Montgomery stated that all mortgages between July 14 and September 30 assigned a FHA case number will still use the risk based premium structure for the remainder of their mortgage loan. All loans assigned a FHA case number after October 1, will go under the upfront premium charge with full credit qualifying refinances at 1.75% no matter the credit rating of the borrower.
The new pricing structure that all borrowers that are delinquent must pay a 3% upfront premium when they refinance under the FHASecure program, which is an increase of .75% that is now in place. The program was put into place under the Bush Administration in order to help borrowers refinance under a fixed rate loan if they were in an adjustable rate mortgage at the time.
The bill HR 3221 also authorized a Hope for Homeowners programs that will guarantee $300 billion for refinancing of delinquent loans that lenders agree to write down the principal and the borrowers agree to share any future gains on the sale of the home with the government. The program will begin to be seen on October 1.
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