FHA Delays Insurance Premium Changes Until October

After announcing last week that it was lowering upfront insurance premiums from 2.25% to 1.0% on Sept. 7, the Federal Housing Administration said it’s pushing back implementation until October.

“Based on industry feedback and our desire to have this change implemented successfully in the marketplace, FHA will make the premium fee changes on all new case numbers effective October 4, 2010,” said Vicki Bott, Deputy Assistant Secretary for the Housing and Urban Development.

HUD says that while the industry responded with support of the new fee structure, they voiced strong concern about having system changes ready in time to meet the original deadline. “Since these system changes impact regulatory disclosures, lenders expressed they must have the additional time to implement and test systems. FHA took this feedback seriously and has accommodated the need for additional time,” said Bott.

Congress passed HR 5981, giving FHA the ability to raise annual premiums from 0.55% to 1.55%, which is expected to add approximately $300 million per month in value to the Mutual Mortgage Insurance Fund at a time when its reserves are perilously low.

“With this authority, FHA is in a better position to address the increased demands of the marketplace and return the MMI fund to congressionally mandated levels without disruption to the housing market,” said Commissioner David Stevens.

FHA won’t raise annual premiums to the statutory limit initially. Instead, it will boost the current 0.5% annual premium for borrowers with loan-to-value ratios of up to 95 percent to 0.85%, and increase the 0.55% annual premium for borrowers with higher LTVs to 0.90%.

The upfront and annual premium changes do not apply to the Title I, HECM (FHA reverse mortgage program), HOPE for Homeowners (H4H), Section 247 (Hawaiian Homelands), Section 248 (Indian Reservations), Section 223 (e) (declining neighborhoods), and Section 238(c) (Military Impact areas in Georgia and New York) loans.

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