In yet another move to stabilize the insurance fund, FHA has issued ML2013-04, which will certainly provide funds, but also could impact the program in other ways. The new rules roll out in 2 phases. The first phase already occurred on April 1st, where the cost of MI increased for many loan types. The second change occurs on case numbers issued after June 3.
In short, annual paid monthly MI will no longer cancel at 78% or 5 years, whichever comes last, but will not run for either 11 years or the life of the loan, depending on term and LTV.
What are the effects? In the short term, case numbers on or before April 1 and June 3rd become more important as the old rules apply. Moreover, FHA remained the last refuge of lending when Fannie and Freddie were going through their struggles and conservatorship transitions. While that provided a lot of stability in the markets, it’s certainly not the most advantageous plan long term for anyone including taxpayers. However, these changes, in addition to private MI now offering more competitive products, are reducing the attractiveness of FHA in many scenarios. We’ll see how much more there is to come, and how fast, based on a multitude of factors like what rules and changes are working through the regulatory pipeline and the desire to attract private capital coming into the mortgage market.
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