New FHA Program for Borrowers with Negative Equity

FHA loans registered on or after October 4, 2010, will have a lower upfront mortgage insurance premium (MIP) and a higher annual premium paid monthly. The upfront MIP will decrease to 1% from the current 2.25%. On a $200,000 mortgage, a borrower would save $2,500 in upfront costs. Thirty year fixed rate mortgages with a loan to value (LTV) under 95% will increase to 85 basis points (bps) and thirty year loans with a LTV over 95% will increase to 90 bps. For a $200,000 mortgage this means increases of $60 or $70 per month. On a fifteen year fixed rate loan, the annual MIP paid monthly will be 25 bps if the LTV is over 90% and NONE if the LTV is under 90%.

The FHA refinance program for borrowers who owe more than the value of their home is starting to ramp up. Two immediate concerns that I have are a possible negative impact on the borrower’s credit score and the tax consequences. Borrower’s need to see if the mortgage company providing them with a short payoff will be reporting this as paid in full or settled for less than full amount. A tax professional should be consulted to determine if a short payoff will be a taxable event.

Please let me know if you have any comments or questions.

Thanks, Chip

Chip Allen

Crestline Mortgage Bankers

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