The Senate approved legislation giving the Secretary of the US Department of Housing and Urban Development the ability to increase annual premiums for single family loans insured by the Federal Housing Administration late Wednesday night.
HR 5981permits FHA to increase its annual premiums for “forward” loans from from 0.55 percent to 1.55 percent. The agency also said it plans to raise annual premiums for HECM loans from 0.50% to 1.25%.
“While premium increases are never ideal, this bill was necessary to help improve the strength and stability of FHA’s single family programs,” said Robert E. Story, Jr., CMB, Chairman of the Mortgage Bankers Association. ”We are encouraged that FHA Commissioner Stevens has indicated he may not need to raise premiums to the maximum, and we believe that that a small increase in the annual premium, coupled with a decrease in FHA’s upfront premium, will help stabilize FHA while lowering closing costs for many borrowers.”
The could also give HUD the ability to adjust premiums for a two reverse mortgage product approach outlined by Colin Cushman, Director of Portfolio Analysis at HUD earlier this year during a conference in Washington, DC.
The proposal includes the current HECM product with higher annual premiums and the “HECM Saver” would provide borrowers with less in proceeds but without an upfront premium. Designed to be a pay as you go product, Cushman said it would help lower the risk to the FHA insurance fund and offer borrowers an additional option not currently available.
According to the National Reverse Mortgage Lenders Association, it’s awaiting confirmation from HUD’s Office of General Counsel that the language in the bill does in fact provide the flexibility needed to implement the HECM Saver. “Early indications are that it does, but we await official confirmation,” said the association.
The bill passed the House last week and now heads to President Barack Obama who is expected to sign the bill into law.
Letter From David H. Stevens:
Over the past week, Congress has taken quick action and passed H.R. 5981. The bill gives FHA the authority to adjust its annual mortgage insurance premium, yielding approximately $300 million per month in value to the FHA Mutual Mortgage Insurance Fund at a time when its reserves are perilously low.
As I have previously stated in my testimony before Congress, FHA will lower its upfront premium simultaneously with the increase to the annual premium¹. It is our intention that effective on September 7, 2010, FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 years². A Mortgagee Letter will be forthcoming once President Obama signs the bill into law, but with today’s passage of H.R. 5981 and our expedited implementation schedule, I wanted to immediately inform the industry of our plans so the lending community can begin preparing for the operational and system changes required to implement FHA’s new mortgage insurance premium structure on all new case numbers by September 7, 2010.
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.
While we appreciate and applaud this recent action, there is still work to be done. HUD remains steadfast in its commitment to comprehensive FHA reform legislation, similar to the FHA Reform Act passed earlier this year by the House, which would further enhance FHA’s lender enforcement capabilities and risk management efforts. We hope Congress will take swift action to pass a broader FHA reform bill when they return from the August recess. FHA’s risk management efforts will not be complete without the ability to monitor lender performance and ensure compliance with our rules.
Although the transition timeframe is short, implementation by September is critical. Thank you in advance for the efforts of you and your organization to make this change happen on such short notice. We appreciate your hard work and continued partnership.
Over the past week, Congress has taken quick action and passed H.R. 5981. The bill gives FHA the authority to adjust its annual mortgage insurance premium, yielding approximately $300 million per month in value to the FHA Mutual Mortgage Insurance Fund at a time when its reserves are perilously low.As I have previously stated in my testimony before Congress, FHA will lower its upfront premium simultaneously with the increase to the annual premium¹. It is our intention that effective on September 7, 2010, FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 years². A Mortgagee Letter will be forthcoming once President Obama signs the bill into law, but with today’s passage of H.R. 5981 and our expedited implementation schedule, I wanted to immediately inform the industry of our plans so the lending community can begin preparing for the operational and system changes required to implement FHA’s new mortgage insurance premium structure on all new case numbers by September 7, 2010.
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.While we appreciate and applaud this recent action, there is still work to be done. HUD remains steadfast in its commitment to comprehensive FHA reform legislation, similar to the FHA Reform Act passed earlier this year by the House, which would further enhance FHA’s lender enforcement capabilities and risk management efforts. We hope Congress will take swift action to pass a broader FHA reform bill when they return from the August recess. FHA’s risk management efforts will not be complete without the ability to monitor lender performance and ensure compliance with our rules.
Although the transition timeframe is short, implementation by September is critical. Thank you in advance for the efforts of you and your organization to make this change happen on such short notice. We appreciate your hard work and continued partnership.
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¹ The upfront and annual premium changes do not apply to the following FHA Programs: Title I, HECM, 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).
² LTV’s <= 95% will increase to 85bps and LTV > 95% will increase to 90 bps
