(LoanSafe.org) – Recently FHA announced significant changes to strengthen its capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. These changes are the latest in a series of efforts we have undertaken to better position FHA to manage its risk while continuing to support the nation’s housing market recovery.

Striking the right balance between managing risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important to FHA. When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history.
By continuing to provide affordable, sustainable mortgage products, FHA will continue to support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities.

Let me take a moment to provide more details on these policy changes:

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

o The initial up-front MIP increase is included in Mortgagee Letter 2010-02, which was published on January 21st and will go into effect April 5, 2010.
(Click here to view the full text of Mortgagee Letter 2010-02)

o The first step will be to raise the up-front MIP by 50 basis points to 2.25% and request legislative authority to increase the maximum annual MIP that FHA can charge so we shift some of the premium increase from the up-front MIP to the annual MIP.

o This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing.

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Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.