New 30-year debt: FHA to collect MIPs for life of mortgage

Deep inside all of the information concerning the Federal Housing Adminstration lately, there is one underreported tidbit we want to point out.

For those of you who currently have FHA-backed mortgages and are looking into an streamlined refinance, the time to act is now. And here's why.

In its 2012 annual report, the U.S. Department of Housing and Urban Development announced it will reverse the original plan to cancel the mortgage insurance program for FHA mortgages, effective “sometime in 2013.” The effective date is dependent on when the loan is endorsed by HUD.

See, with the FHA short on mortgage insurance funds [2], it is having to take measures to protect this mortgage program.

Yes, we can expect that mortgage insurance premiums will increase soon, both upfront and annually. The FHA believes this will strengthen its capital position but not limit access to credit for qualified borrowers.

But after a certain amount of time, the borrowers no longer need to pay insurance premiums, even though FHA-backing remains in force for the life of the loan. That's going to end soon.

"While FHA’s 100% insurance guarantee remained in effect for the 30-year life of a loan, borrowers were only required to pay premiums for less than ten years," HUD said in a statement. "FHA has been left without premiums to cover losses on loans held beyond the period for which it collects premiums. This change will apply to new loans."

Currently, once the principal balance on your mortgage reaches 78% and you have made a minimum of 60 mortgage payments, you are free from paying the premium.

New homebuyers who plan on using FHA for financing should expect to still see the mortgage insurance payments remain due on the loan until the house is sold or can be refinanced into a conventional mortgage.

FHA Acting Commissioner Carol Galante addressed the changes, saying, “We will continue to take aggressive steps to protect FHA’s financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.”

mhopkins@housingwire.com [3]