September 12, 2010 (Shirley Allen)

Effective October 4th, FHA loans will see an increase in the monthly mortgage insurance premium. However, perspective borrowers will see a decrease in the Upfront Mortgage Insurance from 2.25 to 1.00 (100 basis points) on most FHA insured loans except Home Equity Conversion (HECM – “reverse mortgage”).

An increase in the monthly mortgage insurance premium is viewed as much more dangerous to the industry because it impacts monthly payment and thus debt-to-income ration (DTI). Currently on loans of over 95% the MIP is .55% annually and from 95% and lower it is .50% annually. Effective October 4, 2010 those numbers will be .85% and .90% which results in an increased monthly payment.

Borrowers will pay less in upfront fees but will see a rise in their monthly payments and depending how long the borrower stays in the home, they could conceivably pay more than if they had just paid the Upfront Mortgage Insurance.

Other concerns are with higher payments some borrowers may not qualify because their debt ratio is now higher due to the higher payment or that if the economy was to take a turn for the worse it could lead to a higher default rate as borrowers might have a harder time paying their higher payment.

This information applies to 203b and 203k loans.