Here is an excellent explanation of the History and Facts of the FHA Monthly Premium. Thank you to George Souto Loan Originator for giving us such a detailed report on this need to know topic.
This month on Monday, January 9th FHA announced the FHA Monthly Insurance Premium (MIP) would Be Reduced To .60 on LTV's of greater than 95.01% and .55 for LTV's 95% or less. This is only the 3rd time in the history of the FHA they had reduced the MIP, and the 2nd time in the last two years. But this latest reduction was short lived when HUD put the FHA Monthly Insurance Premium (MIP) Reduction On Hold yesterday.
This freeze on the FHA reduction in the MIP was not limited to HUD. This freeze was a part of an over all freeze the new administration placed yesterday on ALL new proposed fees and expenditures, until the new administration is able to assess the impact of all new proposed fees and expenditures.
As much as I feel the reduction in the FHA MIP is a good thing for our economy and housing industry, I understand why the new administration would do this. Considering all the bombshells the outgoing administration dropped on them before leaving office, it is understandable the new administration would want to make sure no new bombs were set to go off, and this was the quickest way to provide time to evaluate things.
For those who will use this as an opportunity to blast the new administration I suggest we take a look at how we got to were we are with the FHA MIP, and why a reduction is needed at all. Below is a chart of the history of what the FHA MIP factors have been, since FHA came into existence.
As you can see from the chart above prior to September 1, 1983 the FHA Monthly Insurance Premium (MIP) was only a .50 factor. On September 1, 1983 FHA experienced it's first reduction in the MIP by eliminating it until July 1, 1991. By the way the reason FHA eliminated the MIP was because it incorporated it into the UpFront Premium and the factor was 3.8%. From July 1, 1991 until December 31, 2000 the MIP fluctuated was based on several Loan-To-Value (LTV) Categories which they established in those years, but none of them were higher than the original .50 MIP Factor.
On January 1, 2001 FHA eliminated all of the different LTV Categories and went back to a straight .50 MIP factor. However, on October 1, 2008, just before President Obama took office FHA reverted back to charging different MIP factors based on LTV whether the LTV was at or below a 95% LTV.
On October 4, 2010 under the Obama administration, the first significant increase to the FHA MIP factor took place when it increased form .50/.55 to .85/.90. Six months later the MIP increase again to 1.10/1.15. In April 9, 2012 the MIP increased a third time to 1.20/1.25. and remained there until April 1, 2013 when the MIP increased to 1.30/1.35 factors. This last increase represented a 245% increase in the MIP from the time President Obama took office, until the MIP was reduced to the present MIP factors of .80.,85 on January 26, 2015.
In the eight years President Obama was in office the FHA MIP factor increased 4 times, and even though it was reduced to the present factor two years before he left office, it is still 155% higher than when he took office. But I am not writing this blog to make a political statement. I am writing this blog to provide the history behind the FHA Monthly Insurance Premium (MIP). This is an effort to put the history of the FHA MIP in black and white so we can see how we got to this point, and before the present administration starts being criticized for their wait an see approach to reducing it.
My hope is that after the present administration evaluates the latest proposed decrease in the FHA MIP, it will not only considers reducing it, but they will reduce the MIP to what it was before 2009 when President Obama took office. FHA is in a very healthy state. There is no need for the high MIP factor we have today, nor is there a need for the MIP to be life time for down payments less than 10%, which imposed by the out going administration in January 26, 2015.
The FHA Monthly Insurance Premium (MIP) Reduction Is On Hold, but that does not mean it will not happen. If the present administration is committed to restoring the housing market and helping more homebuyers achieve the American Dream again. Then they will make sure FHA will once again play a significant roll in making the American Dream possible. Reducing the MIP, as well as making the MIP cancelable again, would be a great start to achieving that in my opinion.
Info about the author:
George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or firstname.lastname@example.org