For many years the Up Front Mortgage Insurance Premium, established and priced by the Federal Housing Administration, has been at 1.75% of the loan amount on purchases and non-streamlined refinances. Due to increased costs and losses in the Administration a new level for the UFMIP has been established and will go into affect on April 5, 2010.
The UFMIP is not the same as the Monthly Mortgage Insurance Premium but rather is paid in full at the time of consummation of the loan. In other words the date the final loan documents are paid and monies exchange hands.
The HUD Mortgagee Letter 2010-02, issued by David Stevens, Secretary of HUD, issued on January 21, 2010 gave notice to lenders and the public of this change. Increases on FHA insured loans include an increase to 2.25% on purchases and streamlined refinances and an increase to 2% on HOPE for Homeowners refinancers and Home Equity Conversion Mortgages also known as “reverse mortgages”.
Annual mortgage premiums, also expressed as MMI from above, will not be affected at this time. The decision to increase UFMIP only was based on the effect of raising a home owner’s debt ratio above acceptable levels by increasing their monthly housing cost.
If you are unfamiliar with FHA mortgage insurance it is exclusively to encourage lenders to make loans. FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s default. Loans must meet certain requirements established by FHA to qualify for insurance.
— Ken Cook NMLS ID 208452