Suspension of FHA Mortgage Premium Reduction
On Friday, Jan. 20th 2017, Housing and Urban Development (HUD) suspended the premium rate cut for FHA backed loans until further notice. HUD’s letter implied that they felt the insurance fund was not yet stable and couldn’t afford the rate cut, therefore suspended it “indefinitely & effective immediately”.
Nations believes that FHA loans are still a great deal even with the old MIP rates. Here are a few benefits of the current FHA loans:
- Loan amounts can be relatively high
- Lower credit scores are OK
- Non-occupant co-borrowers allowed
- No termite report necessary
Since the premium cut announcement was only a few days old and had not taken effect, the impact of the suspension is minimal and that little of a price cut goes to expand access to new homebuyers not already intending to purchase.
Borrowers with FHA loans in process should consult their mortgage advisor with any questions as the issues may be complex. For example, for those loans where there has been issued a Loan Estimate (LE) to the borrower with an MIP based on the FHA’s Mortgage Letter (ML), government action to delay or cancel the MIP reduction would be a valid “changed circumstance”. This could require Nations to provide a revised LE to the borrower without the reduction within 3 business days after receiving the information sufficient to establish the change.
Another common issue that might arise is if the borrower has been issued a Closing Disclosure (CD) with a MIP based on the ML and if delaying or cancelling the MIP reduction results in the APR becoming understated by more than the applicable APR tolerance. If this is the case, issuance of a new CD is necessary. We may need to provide the new CD within 3 business days after receiving information that the MIP is delayed or cancelled. If a new CD is required based on the APR becoming understated by more than the applicable APR tolerance, a new review period is also required.
For FHA refinance loans in the pipeline, it is important to ensure that any loan closed in the next few days not be based on the ML 2017-1 MIP. Such action is necessary to avoid closing a loan and then discovering during or following the rescission period that the loan is uninsurable. We again urge you to consult with your Nations Lending mortgage advisor on these issues.