By Ron Lopez
As most mortgage industry professionals are aware, the Federal Housing Administration recently increased its mortgage insurance premiums. Effective April 9, 2012, all homeowners with FHA insured loans closed beyond this date are subject to a significant upfront mortgage insurance premium (UFMIP) increase from the previous 1% to 1.75% as well as an annual mortgage insurance premium increase by 1.25%.
This could result in homeowners spending thousands of dollars more each year on insurance premiums alone.
The Obama administration and FHA commissioner Carol Galante attribute the increase to the mortgage crisis. And as a result, claim the fee hike could essentially restore the depleted insurance funds and make refinancing easier for underwater homeowners.
What homeowners may be unaware of is the special provision that recently went into effect on June 11; it could not only protect them from the insurance hike, but also enable them to take advantage of market-low interest rates.
This potentially benefits both the borrower and lender.
For FHA-insured loans endorsed prior to May 31, 2009, and those eligible for the FHA Streamline Refinance Program, homeowners could actually see a reduction in the insurance rates highlighted above.
Homeowners who qualify should capitalize on this opportunity and refinance their loans to lock in an UFMIP at just 0.01% and annual insurance rates at 0.55%.
So, what does this mean for lenders and services?
Not only should they expect a forthcoming surge in refinances among the millions of borrowers who have FHA insured loans, but they must also ramp up borrower outreach efforts.
According to the Mortgage Bankers Association, FHA refinances reached an all-time high during the week of June 11 and accounted for 81% of all applications. And, we can anticipate the numbers will continue to grow while this special provision is still in effect.
For homeowners who did not take advantage of the lowest interest rates in history, refinancing after the MIP hikes could actually become more difficult, expensive and have longer timelines for recovering closing costs.
Lenders and servicers must realize the benefits of today's low interest and mortgage insurance rates and encourage borrowers to refinance. Borrower outreach campaigns should include direct mail, phone and email communication efforts to inform borrowers of the recent changes and refinancing options. Lenders and servicers must adopt different outreach methods since borrowers respond differently and no single method works across the board.
Lenders/servicers should identify homeowners who are likely candidates for the FHA refinance and initiate contact via multiple communication channels.
Loans that could not be refinanced due to increased constraints and regulations now can be completed without incurring new fees. Certain states with high volumes of underwater homes could especially benefit from the MIP decrease, and select homeowners have had monthly payments dropped by up to $500.
And, not only do the homeowners benefit from refinancing, but the lenders and servicers do as well.
The FHA refinancing does not require appraisals, is being done in the midst of an advantageous rate environment and increases the likelihood of monthly payments from the homeowners. So while the rates have inevitably increased, for those FHA endorsed loans that are eligible, there are multiple benefits and opportunities for refinancing that must be embraced.
Ron Lopez is manager of Consumer Direct for Gateway Mortgage Group LLC. For more information visit www.gatewayloan.com.