In a step to bolster its reserves, and prevent the need for a taxpayer bailout, HUD is increasing the amount buyers pay for mortgage insurance beginning April 1, 2012. This move is expected to generate an additional $1.25 Billion through June 2013.
The Upfront Mortgage Insurance Premium (UFMIP) will see a 0.75% increase, from 1.0% to 1.75%. The UFMIP is financed into the mortgage and will not increase the amount of money borrowers will need for closing. The annual Mortgage Insurance Premium (MIP) will increase 0.10%, from 1.15% to 1.25% (MIP is paid monthly with the regular mortgage payment). Again, this will not add to the money needed at closing, but both of these increases will affect the monthly payment for FHA borrowers.
For example, assume a sales price of $200,000 and interest rate of 4.5%:
So, in the example above, the borrowers’ monthly payment on a $200,000 home purchase will increase by $23.41. This increase will not have a significant impact on the amount of a mortgage that home buyers can qualify for but will have a large impact on the insurance reserves of the FHA Program.
The reason the FHA mortgage insurance reserves have fallen to such low levels has to due with the mortgage crisis over the last several years. FHA mortgage accounted for only about 5% of all mortgages in the US in 2005 but has increased to about 40% of all mortgages with the tightening credit standards of conforming mortgages and the collapse of the subprime mortgage market. With a larger percentage of all mortgages being FHA, and the increase in defaults over the last several years, FHA has paid out more in insurance claims which has whittled away at their reserves.
Contrary to popular opinion, FHA is the only federal program that has NEVER used a dollar of taxpayer money. It has been self-supporting since it began in the wake of the Great Depression in 1940. In order to make sure FHA does not need a taxpayer bailout, the increase in these fees is necessary to keep FHA a viable option for the thousands of home buyers who need this valuable financing option.
The Upfront Mortgage Insurance Premium (UFMIP) will see a 0.75% increase, from 1.0% to 1.75%. The UFMIP is financed into the mortgage and will not increase the amount of money borrowers will need for closing. The annual Mortgage Insurance Premium (MIP) will increase 0.10%, from 1.15% to 1.25% (MIP is paid monthly with the regular mortgage payment). Again, this will not add to the money needed at closing, but both of these increases will affect the monthly payment for FHA borrowers.
For example, assume a sales price of $200,000 and interest rate of 4.5%:
So, in the example above, the borrowers’ monthly payment on a $200,000 home purchase will increase by $23.41. This increase will not have a significant impact on the amount of a mortgage that home buyers can qualify for but will have a large impact on the insurance reserves of the FHA Program.
The reason the FHA mortgage insurance reserves have fallen to such low levels has to due with the mortgage crisis over the last several years. FHA mortgage accounted for only about 5% of all mortgages in the US in 2005 but has increased to about 40% of all mortgages with the tightening credit standards of conforming mortgages and the collapse of the subprime mortgage market. With a larger percentage of all mortgages being FHA, and the increase in defaults over the last several years, FHA has paid out more in insurance claims which has whittled away at their reserves.
Contrary to popular opinion, FHA is the only federal program that has NEVER used a dollar of taxpayer money. It has been self-supporting since it began in the wake of the Great Depression in 1940. In order to make sure FHA does not need a taxpayer bailout, the increase in these fees is necessary to keep FHA a viable option for the thousands of home buyers who need this valuable financing option.
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