FHA Updates Mortgage Insurance Rules

November 5, 2013

The FHA and HUD issued new rules for mortgage insurance designed to add fiscal security to the loan program, and when those rule changed the new guidelines were published in Mortgagee Letter 2013-04.
This mortgagee letter featured “Revision of Federal Housing Administration (FHA) policies concerning cancellation of the annual Mortgage Insurance Premium (MIP) and increase to the annual MIP”.
Since the publication of that mortgagee letter, all scheduled changes to the MIP rules have taken place. Those changes included the following as published in ML 2013-04:

“Consistent with FHA’s ongoing efforts to strengthen the Mutual Mortgage Insurance Fund, FHA is:

• revising the period for assessing the annual MIP;
• removing the exemption from the annual MIP for loans with terms of 15 years or less and Loan to Value (LTV) ratios of less than or equal to 78 percent at origination; and
• increasing the annual MIP on all forward mortgages except single family forward streamline refinance transactions that refinance existing FHA loans that were endorsed on or before May 31, 2009 (see ML 2012-4).”

The changes mentioned above have indeed been implemented, but since the time of publication there’s been a great deal of confusion in some quarters over the FHA loan policies concerning MIP. To clear up any ambiguities, Carol J. Galante, Assistant Secretary for Housing wrote an update to ML 2013-04 titled, “Implementation of HUD’s Mortgagee Letter on Cancellation of the Annual Mortgage Insurance Premium”.

Galante writes, “FHA is aware of issues related to the implementation of Mortgagee Letter 2013-04, Revision of Federal Housing Administration (FHA) Policies Concerning Cancellation of the Annual Mortgage Insurance Premium (MIP). Specifically, since the effective date of this Mortgagee Letter, some mortgages have been originated using incorrect Truth in Lending Act (TILA) disclosures and/or incorrectly prepared HUD 92900–A/B forms. FHA has consulted with the Consumer Financial Protection Bureau (CFPB) regarding the impact of these issues on Regulation Z. If either error or both occurred in the origination of a mortgage, the mortgagee must resolve all errors...before the mortgage would be eligible for FHA insurance.”

That update was an important one for those affected; borrowers with incorrectly prepared HUD 92900-A/B forms or who had loans prepared with incorrect Truth In Lending Act disclosures may be contacted by their lenders to rectify the situation.
In the event of a dispute with a lender over this issue, borrowers should contact the FHA directly by calling 1-800 CALL FHA to get clarification on their rights and responsibilities as an FHA loan applicant. For a time, FHA stated it still had aspects of these ambiguities under review, so there may be cases where a resolution can only come on a case-by-case basis. Contact the FHA for the latest information regarding these issues.