FHA Looks to Shore Up Finances with New MIP Changes (Including Downpayment Hike to 5%!)

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An increase in annual mortgage insurance premiums (MIP) on most mortgages by 10 basis points or 0.10 percent. Premiums on jumbo mortgages with balances of $625,000 or larger will increase by 5 basis points or 0.05 percent. This will bring jumbo mortgage premiums up to the maximum premium authorized by Congress. These premium increases exclude certain streamline refinance transactions.

FHA will reverse its existing policy of cancelling MIP on loans when the outstanding principal balances reached 78 percent of the original balance. Because FHA remains obligated to insure 100 percent of the outstanding loan balance for the life of the loan, homeowners will now be required to maintain principal payments over that period as well. FHA's Office of Risk Management and Regulatory Affairs estimates that the MMI Fund has foregone billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy.

FHA will require lenders to manually underwrite loans for which borrowers have a decision credit score below 620 and a total debt-to-income (DTI) ratio greater than 43 percent. Lenders will be required to document compensating factors that support the underwriting decision to approve loans where these parameters are exceeded, using FHA manual underwriting and compensating factor guidelines.