Monday, February 7, 2011

IMPORTANT: The Newspapers Report It Wrong : FHA Mortgage Insurance Premiums

The Newspapers Report It Wrong : FHA Mortgage Insurance Premiums

FHA MIP error in the paper
You can't always believe what you read in the papers. Especially when it pertains to mortgages.

Newspapers Don't Track FHA Guideline Change(s)

Newspapers are losing revenue; closing, shrinking, and consolidating along the way. Profits are pressured. So, as one way to lower their costs, editors are increasingly replacing experienced beat writers with "syndicated" articles.
Syndicated articles are typically well-written pieces of content, addressing common topics clearly and plainly. And they're plentiful. Editors  can select from a pool of content and publish as-needed instead of keeping paid writers on-staff.
Syndication can be a great page-filling strategy, but following a path like that requires care. What was written last year is not always applicable today. And editors have to know the difference. With respect to mortgages, unfortunately, they often don't.
The syndicated article is 11 months -- and 2 FHA guideline changes -- behind-the-times.
Your newspaper is giving bad information.

The Story On FHA Mortgage Insurance Premiums

The FHA does not make loans to homeowners. Instead, it insures loans that lenders make to borrowers.
Here's how it works.
The FHA prints a rulebook of income guidelines, asset guidelines, etc, and tells banks "so long as your borrowers meet the requirements in this rulebook, we will insure the loans you make against defaults." If the loans default, the FHA then repays the banks' claims using an insurance coffer that is self-funded by said borrowers.
The FHA's insurance is officially "mortgage insurance premium" -- often abbreviated as MIP. This is as compared to "private mortgage insurance", or PMI, the type of insurance required on certain conventional, non-FHA loans.
FHA mortgage insurance premiums are collected in two parts:
  1. Some percentage of the loan size paid up-front at closing, paid by all borrowers
  2. Some percentage of the loan size, paid monthly, paid by all borrowers except those with 15-year fixed mortgages whose loan-to-values are 90 percent or less
And this is where syndication gets it wrong.
The syndicated article at top incorrectly lists the size of the FHA upfront mortgage insurance premium. The correct value is 1 percent -- not the 1.75 percent listed at top.  And the crux of the issue is not that the article itself it wrong, it's just that the article is wrong today.
It was once correct, but that was 11 months ago.
The FHA has changed its rules twice since March 2010 -- some of it pretty high-profile -- but I'm pretty sure your local news editor wasn't keeping up on the story.
I know that mine wasn't.

Stay Up-To-Date On FHA Mortgage Guidelines

You can't be expected to know when the papers are getting it right or wrong with respect to mortgages, so take the papers out of the equation. I update this website every day with news of the mortgage markets and changes coming down the pike.
You can subscribe to my email newsletter by clicking here.
Mortgage rates and mortgage markets change quickly and often. Unless you're plugged in to the source, you're probably just reading yesterday's news.

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