# Presentation: 512602

## 
FHA Risk-Based Premiums

Industry Conference Call
June 3 & 5, 2008

**FHA Risk-Based Premiums**
**Industry Conference Call**
**June 3 & 5, 2008**

## Risk-Based Premiums

Timing for Premium Change
Determining Correct Premiums
Additional Guidance / Areas of Confusion
Rationale for Premium Change 
Opportunity for Questions & Answers

- Timing for Premium Change
- Determining Correct Premiums
- Additional Guidance / Areas of Confusion
- Rationale for Premium Change
- Opportunity for Questions & Answers

## Slide 3

| FHA Single Family Mortgage Insurance - Upfront and Annual Premiums
 (Loan Terms > 15 years)
Effective as of July 14, 2008 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| All premiums are specified in basis points (0.01%) |  |  |  |  |  |  |  |
| Decision Credit Score  (FICO)            |  |  |  |  |  |  |  |
| 
LTV | 
850-680 | 
679-640 | 
639-600 | 
599-560 | 
559-500 | 
499-300 | NON-TRADITIONAL |
| 
≤ 90.00 | 
125/50 | 
125/50 | 
125/50 | 
150/50 | 
175/50 | 
175/50 | 
150/50 |
| 
90.01-95.00 | 
125/50 | 
125/50 | 
150/50 | 
175/50 | 
200/50 | 
n/a | 
175/50 |
| 
> 95 | 
125/55 | 
150/55 | 
175/55 | 
200/55 | 
225a/55 | 
n/a | 
200/55 |
| A first-time homebuyer, with HUD-approved counseling, will pay only 200 basis points for the upfront mortgage insurance premiums.  |  |  |  |  |  |  |  |

## Implementation Schedule

Effective date July 14, 2008
All FHA business – not just FHASecure
All loans for which case numbers assigned on or after July 14, 2008

- Effective date July 14, 2008
- _All_ FHA business – not just FHA*Secure*
- All loans for which case numbers assigned on or after July 14, 2008

## FHA to Provide Premiums 

For purchase/rate & term and cash-out refis, feedback message via AUS
For streamlined refis, feedback on case number assignment screen 
Lender can use published matrix to determine premiums

- For purchase/rate & term and cash-out refis, feedback message via AUS
- For streamlined refis, feedback on case number assignment screen
- Lender can use published matrix to determine premiums

## What Products and Property Types

Purchase and Refinance Transactions
Multi-unit properties
No add-ons for property type
Lower premiums for 15-year term loans  

- Purchase and Refinance Transactions
- Multi-unit properties
- No add-ons for property type
- Lower premiums for 15-year term loans

## Premiums for Previously Delinquent 

225 basis points up-front premium
50 bps annual premium if LTV <= 95
55 bps, if > 95 LTV
Not eligible for strealine refinance
Refinance must be full credit-qualifying rate and term refinance
Higher CLTV FHASecure NOT subject to higher premium

- 225 basis points up-front premium
- 50 bps annual premium if LTV <= 95
- 55 bps, if > 95 LTV
- Not eligible for strealine refinance
- Refinance must be full credit-qualifying rate and term refinance
- Higher CLTV FHASecure NOT subject to higher premium

## Change to Insurance Premium Only

No change to FHA underwriting standards; only change is premiums charged
Must use TOTAL Scorecard; generated credit score is factor to determine premium
Some additional Accepts/Approves (reduced Refers)

**No change** to FHA underwriting standards; only change is premiums charged
- Must use TOTAL Scorecard; generated credit score is factor to determine premium
- Some additional Accepts/Approves (reduced Refers)

## Final Notice Addresses Comments

LTV rather than downpayment
Type of downpayment is not a factor for premium charge 
Non-traditional credit borrowers have high LTV option
Decision credit score consistent with industry

- LTV rather than downpayment
- Type of downpayment is not a factor for premium charge
- Non-traditional credit borrowers have high LTV option
- Decision credit score consistent with industry

## Credit Scores:  Multiple Borrowers

Must use TOTAL Scorecard
If borrower has score, premium based on  score (not eligibility)
If two borrowers, use lowest score
If one of borrowers has non-traditional credit, use lower of two – pay higher premium
If one of borrowers falls into ineligible category, FHA cannot insure 

- Must use TOTAL Scorecard
- If borrower has score, premium based on  score (not eligibility)
- If two borrowers, use lowest score
- If one of borrowers has non-traditional credit, use lower of two – pay higher premium
- If one of borrowers falls into ineligible category, FHA cannot insure

## Manual Downgrades/Disputed Credit

If relevant information excluded from credit report results in downgrade, borrower still pays premium based on generated score
If consumer disputes accuracy of report: 
Consumer may work to repair
Consumer may pay premium based on published score

- If relevant information excluded from credit report results in downgrade, borrower still pays premium based on generated score
- If consumer disputes accuracy of report:
- Consumer may work to repair
- Consumer may pay premium based on published score

## Streamlined Refinances 

Existing loans - case numbers before July 14th (borrower paid 150 bps)
StrRefi case number before July 14 = 150 bps 
StrRefi case number after July 14 = 100 bps
New loans - case numbers after July 14th (borrower pays risk-based premiums)
StrRefi (case number after July 14) with no new credit = use original credit score and LTV 
If credit qualify = use new credit score, old LTV

- Existing loans - case numbers before July 14th (borrower paid 150 bps)
- StrRefi case number before July 14 = 150 bps
- StrRefi case number after July 14 = 100 bps
- New loans - case numbers after July 14th (borrower pays risk-based premiums)
- StrRefi (case number after July 14) with no new credit = use original credit score and LTV
- If credit qualify = use new credit score, old LTV

## Streamlined Refinances

Case number assignment screen will feed back message with appropriate premium to be charged 
FHASecure borrowers who were previously delinquent are NOT eligible for a streamlined refi

- Case number assignment screen will feed back message with appropriate premium to be charged
- FHASecure borrowers who were previously delinquent are NOT eligible for a streamlined refi

## Counseling to Reduce MIP

Borrowers with >95 LTV and 500 – 559 credit score
Upfront MIP reduced from 225 to 200 
Counseling from HUD-approved HCA  
Prior to execution of sales contract
One-on-one
Face-to-face, with some exceptions
Certificate will indicate counselor compliance with requirements

- Borrowers with >95 LTV and 500 – 559 credit score
- Upfront MIP reduced from 225 to 200
- Counseling from HUD-approved HCA
- Prior to execution of sales contract
- One-on-one
- Face-to-face, with some exceptions
- Certificate will indicate counselor compliance with requirements

## Slide 15

| FHA Single Family Mortgage Insurance - Upfront and Annual Premiums
 (Loan Terms > 15 years)
Effective as of July 14, 2008 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| All premiums are specified in basis points (0.01%) |  |  |  |  |  |  |  |
| Decision Credit Score  (FICO)            |  |  |  |  |  |  |  |
| 
LTV | 
850-680 | 
679-640 | 
639-600 | 
599-560 | 
559-500 | 
499-300 | NON-TRADITIONAL |
| 
≤ 90.00 | 
125/50 | 
125/50 | 
125/50 | 
150/50 | 
175/50 | 
175/50 | 
150/50 |
| 
90.01-95.00 | 
125/50 | 
125/50 | 
150/50 | 
175/50 | 
200/50 | 
n/a | 
175/50 |
| 
> 95 | 
125/55 | 
150/55 | 
175/55 | 
200/55 | 
225a/55 | 
n/a | 
200/55 |
| A first-time homebuyer, with HUD-approved counseling, will pay only 200 basis points for the upfront mortgage insurance premiums.  |  |  |  |  |  |  |  |

## FHA Single Family Claim Rates

- Claim rates -  1 - 7

- Claim rates -  8 - 12

- Claim rates -  13 - 16

- Claim rates -  17 - 20

- Claim rates – 21 - 25

- Claim rates – above 25

## Risk-Based Premiums

|  | Median Incomes of FHA Purchase Borrowers in FY 2007 Are Modest |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | FICO Score Range |  |  |  |  |  |  |  |  |
| LTV | 850-680 | 679-640 | 639-620 | 619-600 | 599-560 | 559-500 | 499-300 | None |  |
| < 90.00 |        $43,404  |        42,906  |        43,290  |        44,550  |        48,180  |        52,068  |        49,200  |        32,232  |   |
| 91-95 |        47,388  |        49,338  |        49,800  |        51,420  |        53,724  |        54,984  |        55,170  |        37,440  |         |
| 96-97 |        49,512  |        52,506  |        53,208  |        54,996  |        55,068  |        55,500  |        52,824  |        39,000  |  |
|  | 48,756 | 51,372 | 51,936 | 52,752 | 53,004 | 53,388 | 51,996 | 37,440 |  |

**Risk-Based Premiums**

## FHA Borrower Profile  

- Lower income borrowers w/higher credit scores and high LTVs = majority
- 23% of borrowers’ credit scores are 680-850
- 50% of borrowers have credit scores above 620

**FHA Borrower Profile****  **

## Status Quo Is Not an Option

- No premium changes, FHA requires $1.4B in FY09 appropriations
- Premium increase to 225 across-the-board, FHA requires $607M in FY09 appropriations

## Questions

## Concluding Remarks