According to Mortgagee Letter 2010-28 from the U.S. Department of Housing and Urban Development (HUD) dated September 1, 2010, the President has signed into law new legislation (Public Law 111-229 signed August 12, 2010) which gives HUD greater flexibility in setting premium amounts charged for Federal Housing Administration (FHA) mortgage insurance programs for single family homes. The law sets new maximum annual and upfront premiums for various types of single family mortgage insurance programs.
According to David Stevens, Assistant Secretary for Housing – Federal Housing Commissioner:
HUD has decided to raise the annual premium and correspondingly lower the upfront premium, except for Home Equity Conversion Mortgages (HECM), so that FHA is in a better position to address the increased demands of the marketplace and return the Mutual Mortgage Insurance (MMI) fund to congressionally mandated levels without disruption to the housing market.
The changes desribed in Mortgagee Letter 2010-28 for upfront and annual premiums apply to all FHA Single Family Insurance Programs except:
- Title I
- HOPE for Homeowners (H4H)
- Section 247 (Hawaiian Homelands)
- Section 248 (Indian Reservations)
- Section 223(e) (Declining Neighborhoods)
- Section 238(c) (Military Impact areas in Georgia and New York)
The above programs remain unaffected by this announcement.
Changes to Traditional FHA Purchase and Refinance Products
As mentioned previously, Mortgagee Letter 2010-28 states that HUD is lowering upfront premiums and raising annual premiums for their traditional mortgage and refinance insurance programs (including streamline refinances). What this means for consumers is that closing costs for an FHA-insured mortgage or refinance loan will be lowered, but monthly housing payments will go up.
These changes will all take affect for all FHA traditional mortgage and refinance loans with case numbers assigned on or after October 4, 2010. The changes are summarized below.
Upfront FHA Mortgage and Refinance Premiums
Regardless of the amortization terms, all traditional FHA mortgage and refinance loans with case numbers assigned on or after October 4, 2010, will have the following upfront mortgage insurance premium requirements:
| Mortgage Type | New Upfront Premium |
| Purchase Mortgages and Full-Credit Qualifying Refinances | 1% |
| Streamline Refinances (All Types) | 1% |
Annual FHA Mortgage and Refinance Premiums
The increase in annual mortgage insurance premiums is based on both the original loan amount and the term of the loan. The maximum approved annual premiums (not the actual premiums) changed as follows:
| LTV | Old Maximum Annual Premium | New Maximum Annual Premium |
| >95% | 0.55% | 1.55% |
| <=95% | 0.50% | 1.50% |
Though HUD did not raise the annual premiums to the new maximums, they still increased them for loans with a term of greater than 15 years as follows:
| Term | LTV | New Annual Premium |
| >15 yrs | >95% | 0.90% |
| >15 yrs | <= 95% | 0.85% |
Annual premiums did NOT change for loans with a term of 15 years or less. The annual premiums for those mortgage and refinance loans remain as follows:
| Term | LTV | Unchanged Annual Premium |
| <=15 yrs | >90% | 0.25% |
| <=15 yrs | <= 90% | NONE |
Home Equity Conversion Mortgage (HECM) Loans
According to Mortgagee Letter 2010-28, HUD is also changing the mortgage insurance premiums for Home Equity Conversion Mortgages (HECM). HECMs are FHA-insured reverse mortgages made available to qualified borrowers by FHA-approved lenders.
All Home Equity Conversion Mortgages from the FHA which are assigned a case number on or after October 4th, 2010 will require a 1.25% mortgage insurance premium (MIP) annually instead of the old 0.5% annual MIP. HECM borrowers will continue to pay the 2.00% upfront MIP as it will remain unchanged.
