April 15, 2010 by MSI
When a borrower takes out a FHA loan, they are required to pay two types of mortgage insurance: an Up Front Mortgage Insurance Premium (“UFMIP”) and a Monthly Insurance Premium (“MI”).So, why do borrowers have to pay these insurances and where do the monies go? Both of these insurance types were set in place to safeguard the Federal Housing Administration (“FHA”) mitigating the risk of the borrower defaulting on their loan. All monies attributed to these insurances are placed into an escrow account at the U.S. Treasury and are proportionately distributed to the Department of Housing and Urban Development (“HUD”) on a monthly basis. Due to the increasing number of foreclosures in the recent and current market, HUD has experienced significant financial losses from defaults on FHA loans. In an effort to strengthen their position and reduce future losses, HUD has increased the UFMIP on the majority of FHA loan programs to 2.25% of the loan amount for all case files issued on or after April 5, 2010; a change that will increase premiums for both home purchase loans as well as most refinance transactions.When purchasing a home, individuals need to understand that there are a myriad of mortgage programs available each of which has both benefits and drawbacks. For employees relocating corporately or simply moving themselves, it’s important to ensure that they are working with a qualified and experienced mortgage lender who understands the current market and will work with them to secure the financing option best suited for their specific needs.
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I didn't know there was insurance in case of defaults on loans. It's also kind of strange that the date that the premiums went up is the same date the Home Affordable Foreclosure Alternatives(HAFA) program began. Maybe it's a coincidence? Anyhow, with interest rates and housing prices as low as they are, the sting of extra insurance rates probably won't be so bad.
My customers are getting hit by this insurance increase pretty hard. I know the property values are down and interest rates are low, but this is making it difficult for those who want to buy a house and can barely come up with a down payment.
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