[Federal Register Volume 73, Number 171 (Wednesday, September 3, 2008)]
[Notices]
[Pages 51505-51506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-20299]



[[Page 51505]]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5171-N-03]


Federal Housing Administration (FHA) Single Family Mortgage 
Insurance: Announcement of Moratorium on Risk-Based Premiums

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Notice.

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SUMMARY: Consistent with the Housing and Economic Recovery Act of 2008, 
signed into law on July 30, 2008, this notice announces a one-year 
moratorium, commencing October 1, 2008, on premium pricing in 
accordance with FHA's risk-based premium structure. This structure was 
set for most Title II single family mortgage insurance programs by a 
May 13, 2008, notice, which provided for implementation commencing on 
July 14, 2008. This notice provides directions for FHA-approved 
mortgagees to ensure their compliance with the moratorium that 
commences October 1, 2008.

FOR FURTHER INFORMATION CONTACT: Margaret E. Burns, Director, Office of 
Single Family Program Development, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410; telephone 
number 202-708-2121 (this is not a toll-free number). Persons with 
hearing or speech impairments may access this number through TTY by 
calling the toll-free Federal Information Relay Service at 800-877-
8339.

SUPPLEMENTARY INFORMATION: 

I. Background

    By notice published by HUD in the Federal Register on September 20, 
2007 (72 FR 53872), FHA announced its plan to implement risk-based 
premiums for FHA loans and included the following information in the 
notice. Section 203(c)(2) of the National Housing Act (12 U.S.C. 
1709(c)(2)) provides for upfront and annual mortgage insurance premiums 
for most FHA single family programs. Such upfront and annual insurance 
premiums are set at levels not to exceed 2.25 percent \1\ and 0.50 
percent (0.55 percent for mortgages involving an original principal 
obligation that is greater than 95 percent of the appraised value of 
the property), respectively, with a discount available on the upfront 
premiums for some mortgagors who are first-time homebuyers and who 
successfully complete pre-purchase homeownership counseling approved by 
the Secretary.
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    \1\ First time homebuyers who receive approved counseling pay an 
up-front premium not to exceed 2.0%. Section 2114 of the FHA 
Modernization Act (Title I of Division Be of Public Law 110-289, 
approved July 30, 2008) increased the maximum level of the upfront 
premium to 3 percent except for first time homebuyers. The maximum 
level for first time homebuyers was increased to 2.75 percent.
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    FHA proposed a range of premiums based on risk, so that it would be 
able to offer options to: (1) Mortgagees serving borrowers who were 
previously underserved, or not served, by the conventional marketplace; 
and (2) mortgagees serving those borrowers wishing to lower their 
premiums by, for example, increasing their downpayment or by improving 
their credit scores. Additionally, FHA noted that offering a range of 
premiums based on risk helps to ensure the future financial soundness 
of FHA programs that are obligations of the Mutual Mortgage Insurance 
Fund (MMIF or the Fund).
    The September 20, 2007, notice solicited public comment. Following 
consideration of public comments, on May 13, 2008 (73 FR 27704), FHA 
issued a notice announcing its risk-based premium structure, which 
included changes made in response to public comment, and an 
implementation date of July 14, 2008.

II. Authority for, and Purpose of, This Notice

    On July 30, 2008, the President signed into law the Housing and 
Economic Recovery Act of 2008 (Pub. L. 110-289, 122 Stat. 2654, 
approved July 30, 2008). Title I of Division B is the FHA Modernization 
Act of 2008 (Act). Section 2133 of the Act places a one year moratorium 
on FHA's implementation and carrying out of its risk-based premium 
structure commencing October 1, 2008. Section 2132 of the Act directs 
HUD to provide by notice additional requirements necessary to 
immediately carry out the Act. Consistent with this section, HUD is 
providing early notice to FHA-approved mortgagees of steps to be taken 
to ensure compliance with section 2133.
    Accordingly, this notice provides directions to FHA-approved 
mortgagees for the timely and orderly transition into, and out of, the 
statutory moratorium on risk-based premiums. Given the commencement of 
the moratorium on October 1, 2008, FHA-approved mortgagees are expected 
to begin modifying their systems and processes for compliance with the 
moratorium on risk based pricing in accordance with this notice. In 
addition to the directions provided in this notice, FHA's Web site at 
http://www.fha.gov provides operational questions anticipated to be 
asked by FHA-approved mortgagees and provides the answers to these 
questions.

III. Applicability of Statutory Period

    Section 2133 requires that HUD ``shall not take any action to 
implement or carry out risk-based premiums'' for a 12-month period 
beginning on October 1, 2008. HUD considers that this moratorium is 
intended to establish a clearly delineated, one-year period to cease 
FHA's risk-based pricing of single family mortgage insurance premiums, 
but is not intended to disrupt the reasonable expectations of borrowers 
and mortgagees participating in the FHA-insured mortgage lending 
process. The statute and the risk-based premium notice can be read 
consistently to address such concerns. The May 13, 2008, notice stated 
that the risk-based premium structure ``is effective for new FHA case 
number assignments made on or after July 14, 2008.'' (See 73 FR 27710.) 
Since the risk-based premium is effective at the point at which a new 
FHA case number assignment is made, HUD considers the risk-based 
premium to be carried out at that point. Accordingly, the statutory 
moratorium shall be effective and carried out on October 1, 2008 for 
new FHA case number assignments made on or after that date. Again, HUD 
expects that all FHA-approved mortgagees will begin taking immediate 
steps to modify their systems and procedures to assure compliance with 
this requirement by October 1, 2008.
    The moratorium will continue for a 12-month period, applying to new 
FHA case number assignments made through and including September 30, 
2009. In this way, the applicability of the term of the statutory 
period is clearly established, and all participants in the FHA-insured 
mortgage lending process may adequately prepare for full compliance 
with the statute. Mortgages with FHA case number assignments made on 
July 14, 2008, through and including September 30, 2008, shall maintain 
the risk-based premium structure for the life of the mortgage.

IV. Directions to FHA-Approved Mortgagees on Premium Pricing During 
Moratorium

    FHA is not authorized to, and will not, insure any mortgages for 
which new FHA case number assignments are made on or after October 1, 
2008 and before October 1, 2009, for which the premium has been set in 
accordance with the May 13, 2008 notice.

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    The upfront and annual premiums on mortgages for which new FHA case 
number assignments are made on or after October 1, 2008 and before 
October 1, 2009, are as follows:
    Upfront Premiums: FHA will charge an upfront premium in an amount 
equal to the following percentages of the mortgage:
    <bullet> Purchase Money Mortgages and Full-Credit Qualifying 
Refinances = 1.75 Percent
    <bullet> Streamline Refinances (all types) = 1.50 Percent
    <bullet> FHASecure (Delinquent Mortgagors) = 3.00 Percent.
    Annual Premiums: An annual premium, shown in basis points below, to 
be remitted on a monthly basis, will also be charged based on the 
initial loan-to-value ratio and length of the mortgage (except for 
FHASecure delinquent mortgages) according to the following schedule:
    <bullet> Purchase Money Mortgages, Full-Qualifying Refinances, and 
Streamline Refinances:

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                                             Annual for Loans                                  Annual for Loans
                   LTV                          >15 years                   LTV                   <=15 years
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<=95.....................................                  50   <=90.......................                None
>95......................................                  55   >90........................                  25
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    <bullet> FHASecure (delinquent mortgagors):

------------------------------------------------------------------------
                                                       Annual (all loan
                        LTV                                 terms)
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<=95...............................................                  50
>95................................................                  55
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    FHA will issue another notice that will formally advise when the 
moratorium is concluded and the premium pricing structure that should 
be followed once the moratorium ends.

V. Additional Premium Pricing Requirements

    All FHA-approved mortgagees must begin to modify their systems and 
procedures to be in compliance with the following additional 
requirements applicable to any mortgages for which new FHA case number 
assignments are made on or after October 1, 2008 and before October 1, 
2009:
    1. The LTV ratio, computed to two decimals (e.g., 95.65) is 
calculated by dividing the mortgage amount prior to adding on any 
upfront mortgage insurance premium by the property's sale price or 
appraised value, whichever is lower.
    2. Borrowers who have decision credit scores below 500 must have 
loan-to-value ratios less than 90 percent to qualify for an FHA-insured 
mortgage.
    3. A ``decision credit score'' is determined for each applicant 
according to the following guidelines: when three scores are available 
(one from each national consumer reporting agency: Equifax, TransUnion, 
and Experian[supreg]), the middle value is used; when only two are 
available, the lesser of the two is chosen; when only one is available, 
then that score is used. If more than one individual is applying for 
the same mortgage, the lender should determine the decision credit 
score for each individual borrower and then use the lowest score to 
determine the final decision credit score for the application.
    4. All borrowers with eligible decision credit scores must be 
scored by TOTAL.
    5. The premium rates established in this notice apply to those 
forward mortgages insured under FHA's Mutual Mortgage Insurance (MMI) 
fund, the Section 203(k) rehabilitation mortgage insurance program, and 
individual condominium units insured under Section 234(c). The premiums 
in this notice do not apply to mortgages insured under Title I of the 
National Housing Act, nor to reverse mortgages under FHA's Home Equity 
Conversion Mortgage (HECM) program. The premiums in this notice also do 
not apply to Section 223(e) (declining neighborhoods), Section 238(c) 
(military impact areas in Georgia and New York), Section 247 (Hawaiian 
Homelands), and Section 248 (Indian Reservations).

    Dated: August 26, 2008.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. E8-20299 Filed 9-2-08; 8:45 am]
BILLING CODE 4210-67-P