U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000
December 20, 2000
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
MORTGAGEE LETTER 00-46
TO: ALL APPROVED MORTGAGEES
SUBJECT: Additional Details about the Further Reduction in
Upfront Mortgage Insurance Premiums and Other Mortgage
Insurance Premium Changes
Mortgagee Letter 00-38 advised lenders that FHA had reduced
its Upfront Mortgage Insurance Premium (UFMIP) and provided
information regarding when the annual mortgage insurance premium
could be canceled. This Mortgagee Letter provides additional
information, including details on the mortgage insurance premium
charges for refinances, and issues the new refund schedule.
These instructions are being provided now to assist lenders in
explaining FHA's mortgage insurance payment policies to borrowers
as well as for other lender disclosure requirements.
Refinance Transactions
o Regular and Streamline Refinances (excepting those streamline
refinances of mortgages closed before July 1, 1991). The
UFMIP for all refinance transactions, streamline as well as
regular refinances, is 1.50% regardless of the term of the
mortgage.
The amount of the annual MIP is 0.50% for those mortgages
with terms greater than 15 years, and 0.25% for those with
terms of 15 years or less. Also, those mortgages with terms
of 15 years or less where the loan-to-value is determined to
be less than 90 percent are not subject to an annual premium.
The amount of unearned premium refunded for the mortgage
being refinanced will depend on when the mortgage closed.
For those mortgages closed after July 1, 1991 but before
January 1, 2001, the seven year unearned premium refund
schedule shown in Mortgagee Letter 94-1 remains in effect.
For mortgages closed on or after January 1, 2001 that are
subsequently refinanced, the five year refund schedule, shown
as an attachment to this letter, applies. If correct
information is entered into CHUMS by the lender for UFMIP
refinance authorization, FHA will automatically determine the
amount of the refund based on the appropriate refund
schedule. If the refund amount exceeds the new 1.5% upfront
premium, the excess will be sent directly to the borrower
from the U.S. Treasury using FHA's disbursement process.
2
The loan-to-value ratio on streamline refinances performed
without appraisals will be based on data regarding the
mortgage being refinanced, including sales price and
appraised value amounts residing in FHA's Single Family
Insurance System (SFIS). FHA will compute a new loan-to-
value ratio by dividing the new loan amount, exclusive of any
upfront MIP, by the lower of the sales price or appraised
value amount residing in SFIS. From this computed loan-to-
value ratio, FHA will determine when the 78 percent threshold
is reached based on the scheduled amortization.
Regardless of the computed loan-to-value ratio, all but 15-
year term mortgages will have annual premiums for the greater
of five years or until the amortized loan-to-value reaches 78
percent; there is no annual premium on 15-year term mortgages
with initial loan-to-value ratios less than 90 percent. All
other mortgages with terms greater than 15 years, regardless
of the initial loan-to-value ratio will have annual premiums
for the greater of five years or until the amortized loan-to-
value reaches 78 percent. If a computed loan-to-value ratio
is not possible, due to missing data or previous refinancing
without an appraisal, the new loan-to-value will default to
89.99 percent.
o Streamline Refinances of Mortgages Closed Before July 1,1991:
Streamline refinances of mortgages closed before July 1, 1991
will remain exempt from the annual premium and will be
charged an upfront premium of only 1.50%. Lenders must
accurately encode the appropriate CHUMS screen to obtain the
annual premium exemption.
Shortened UFMIP Refund Schedule
As stated in Mortgagee Letter 00-38 , for loans closed on or
after January 1, 2001, the unearned premium refund schedule is
shortened to a five year period. This applies to refinances as
well as loans paid in full. The new refund schedule is attached
to this Mortgagee Letter.
Canceling FHA's Annual Mortgage Insurance Premiums
o Cancellation based on Initial Amortization Schedule:
Effective for all loans closed on or after January 1, 2001,
FHA's annual mortgage insurance premium will automatically be
canceled-once the unpaid principal balance, excluding the
upfront MIP, reaches 78 percent of the lower of the initial
sales price or appraised value based on the initial
amortization schedule and pursuant to instructions contained
in ML 00-38 . Although the annual mortgage insurance premium
will be canceled as described, the contract of insurance will
remain in force for the loan's full term. This mortgage
insurance premium cancellation provision applies only to
loans insured under the Mutual Mortgage Insurance (MMI) fund.
The MMI fund does not include mortgages on condominiums or
Section 203(k) rehabilitation loans, among others.
3
Once the mortgage amortizes to a loan-to-value ratio of 78
percent, collection of the annual MIP will cease. FHA will
determine when the mortgage reaches the amortized 78 percent
loan-to-value threshold based on the contract interest rate
(initial note rate on adjustable rate mortgages) and the
loan-to-value information provided to CHUMS by the
originating lender, and will cease billing the servicing
lender accordingly. FHA's calculation of the 78 percent
threshold will be predicated on the loan amount excluding the
upfront MIP.
Effective May 1, 2001, FHA will provide the date at which the
annual MIP will end. The cancellation date will be available
to lenders via the Case Query Screen located in the FHA
Connection Single, Family Origination section and the
Portfolio and Advance Notice reports located in the FHA
connection SF Servicing section. Lenders utilizing HUD's
Frame Relay will be able to obtain the same information
through the Portfolio Report and Advance Notice applications.
o Borrower Initiated Cancellation: In addition to mortgages
that reach the 78 percent loan-to-value ratio threshold
through initial scheduled amortization, borrowers can also
request through their lenders cancellation of the collection
of the annual mortgage insurance premium for those mortgages
that reach the 78 percent threshold in advance due to
prepayments (principal curtailment). Those loans reaching
the 78 percent loan to value threshold sooner than projected
(but not sooner than five years from the date of origination
except for 15-year term mortgages) due to advanced payments
of principal will have the annual premium collections
canceled upon the servicing lender submitting supporting
information to FHA following the borrower's request provided
that the borrower has not been more than 30 days delinquent
on the mortgage during the previous twelve months. As part
of their annual disclosures to homeowners, servicers are to
notify borrowers of their option to cancel the annual MIP in
advance of the projected date by making additional payments
of mortgage principal. As stated in ML 00-38 , the 78 percent
threshold will be predicated only upon the initial sales
price or appraised value, whichever was less.
Effective May 1, 2001, FHA will also provide the amount the
loan balance must reach in order to cancel the annual MIP.
FHA will determine the loan balance at which the 78 percent
threshold is met by excluding the upfront MIP. The required
loan balance data will be available to lenders via the Case
Query Screen located in the FHA Connection Single Family
Origination section and the Portfolio and Advance Notice
reports located in the FHA connection SF Servicing section.
Lenders utilizing HUD's Frame Relay will be able to obtain
the same information through the Portfolio Report and Advance
Notice applications. Servicing lenders should use the
formula provided by SFPCS-Periodic described in Mortgagee
Letter 98-22 .
4
If the borrower initiates cancellation of the MIP prior to
FHA's original calculated cancellation date, lenders shall
submit cancellation information using the FHA Connection or
EDI processes. A separate Mortgagee Letter will be issued
detailing the required information for the cancellation.
Updated Consumer Disclosures
Form HUD 92900-B, "Important Notice to Homebuyers," has been
revised to include new information on mortgage insurance
premiums. In addition, the suggested format for the lender's
"Informed Consumer Choice Disclosure" originally described in ML
99-23 has been updated to reflect the revisions to both the
upfront MIP as well as the annual premiums. The revised copies
of these disclosures are attached to this Mortgagee Letter. Form
HUD 92900-B is also available for downloading through HUDCLIPS at
www.hudclips.org.
Since the annual premium termination per the amortization
schedule is based on the initial loan-to-value as well as the
interest rate of the mortgage, lenders are advised to determine
the projected cutoff date for Truth-In-Lending on these factors.
As stated above, the 78 percent loan-to-value threshold on
adjustable rate mortgages will be predicated on the initial rate.
If you have any questions about this Mortgagee Letter,
please contact your local Homeownership Center in Atlanta (888-
696-4687), Denver (800-543-9378), Philadelphia (800-440-8647), or
Santa Ana (888-827-5605).
Sincerely,
William C. Apgar
Assistant Secretary for Housing-
Federal Housing Commissioner
Attachments
HUD MODEL NOTICE (Revised 1/01) INFORMED CONSUMER CHOICE DISCLOSURE NOTICE
In addition to an FHA-insured mortgage, you may also qualify for
other mortgage products offered by your lender. To assure that
you are aware of possible choices in financing, your lender has
prepared a comparison of the typical costs of alternative
conventional mortgage product(s) below, using representative loan
amounts and costs (the actual loan amounts and associated costs
shown below will vary from your own mortgage loan transaction).
You should study the comparison carefully, ask questions, and
determine which product is best for you. The information
provided below was prepared as of [month and year].
Neither your lender nor FHA warrants that you actually qualify
for any mortgage loan offered by your lender. This notice is
provided to you to identify the key differences between these
mortgage products offered by your lender. This disclosure is not
a contract and does not constitute loan approval. Actual
mortgage approval can only be made following a full underwriting
analysis by your mortgage lender.
FHA Financing Conventional Financing
203(b) Fixed Rate 97% with Mortgage Insurance
(MI)
1 Sales Price $100,000 $100,000
2 Mortgage Amount $97,750 ($99,216 w/ Upfront $97,000
Mortgage Insurance Premium)
3 Closing Costs $2000 $2000
4 Downpayment Needed $4250 $5000
5 Interest Rate and 7.00%/30 Year Loan 7.00%/30 Year Loan
Term of Loan in Years
6 Monthly Payment $660 $645
(principal and interest only)
7 Loan-to-Value 97.75% 97%
8 Monthly Mortgage Insurance Premium
(first year) $39.94 1 $76.63
9 Maximum Number of Years of
Monthly Insurance
Premium Payments Approx. 14 Years Approx. 13 Years
10 Upfront Mortgage $1,466 2 (Included in Mortgage N/A
Insurance Premium Amount, line 2)
(if applicable)
1 Monthly mortgage insurance premiums are calculated on the
average annual principal balance, i.e., as the amount you owe on
the loan decreases each year, so does the amount of the monthly
premium.
2 Based on an upfront mortgage insurance premium rate of 1.50%.
FHA Mortgage Insurance Premium Information:
If you paid an upfront mortgage insurance premium, you will also
be charged a monthly mortgage insurance premium until the loan to
value ratio of your mortgage reaches 78 percent of the initial
sales price or appraised value of your home, whichever was lower
(provided that premiums are paid for at least five years). You
will reach the 78 percent loan-to-value threshold in one of two
ways: Through normal amortization as you make your monthly
payments, or by paying additional principal on the mortgage.
Your lender can advise you on when the mortgage will reach the 78
percent level through normal amortization.
If you have a 15-year mortgage and make a downpayment in excess
of 10 percent, you will not have to make monthly mortgage
insurance premiums. You will also reach the 78 percent loan-to-
value threshold earlier than on longer term mortgages and may not
have to pay monthly mortgage insurance premiums for the full five
years.
You are required to make these payments on your FHA-insured loan
unless you refinance or the mortgage is otherwise paid in full.
If you were not charged an upfront premium, as for example on
condominiums, you will pay the monthly premium for the life of
the mortgage.
