By: Krista Cooley, Kara M. Ward
Last week, President Barack Obama announced that, at the end of this month, the U.S. Department of Housing and Urban Development (“HUD” or “Department”) will implement a 50-basis-point reduction in the annual mortgage insurance premium (“MIP”) borrowers pay to obtain a Federal Housing Administration (“FHA”) insured loan. On Friday, HUD released Mortgagee Letter 2015-01, as well as instructions on FHA Case Number assignments, which include details about the timing and scope of the annual MIP reduction. Below, we summarize these events.
FHA Annual Premium Reduction
In Mortgagee Letter 2015-01, HUD announced revised annual MIP rates for most FHA-insured, Title II forward mortgages. Specifically, for FHA-insured loans with terms greater than 15 years, the Department will reduce the annual MIP rate by 50 basis points. Depending on the loan amount and loan-to-value (“LTV”) ratio, the new annual MIP rates will range from 80–105 basis points. For example, for an FHA-insured loan with a term greater than 15 years, a base loan amount less than or equal to $625,500, and an LTV ratio greater than 95%, the annual MIP rate will be reduced from 135 to 85 basis points. The reduced annual MIP rates will apply to FHA-insured purchase-money loans, as well as FHA-insured refinance loans with loan terms greater than 15 years. The annual MIP rates for FHA-insured loans with terms of 15 years or less remain unchanged. HUD also did not make any changes to the upfront MIP paid by borrowers at the closing of FHA-insured loans at this time.
Mortgagee Letter 2015-01 contains a notable exclusion from the annual MIP rate reduction announcement. Pursuant to a policy implemented in 2012 that was designed to encourage borrowers with existing FHA-insured loans to refinance into a lower rate loan without incurring a higher annual MIP rate, the annual MIP rate for single-family streamlined refinance transactions that refinance existing FHA-insured loans that were endorsed on or before May 31, 2009, has remained at 55 basis points. When HUD increased annual MIP rates in 2013, it excluded this specific subset of FHA streamlined refinance transactions from those increases. Similarly, Mortgagee Letter 2015-01 excludes this limited subset of streamlined refinance transactions from the Department’s most recent announcement, to provide borrowers with existing FHA-insured loans endorsed on or before May 31, 2009, the continued opportunity to refinance into another FHA-insured loan while maintaining an annual MIP rate of 55 basis points. Mortgagee Letter 2015-01 also excludes loans insured under Section 247 of the National Housing Act from the most recent annual MIP reduction announcement.