FHA MIP Updates Go Live on Today; Flood Insurance Officially Extended

On the legislative front, President Obama signed into law S. 3814, a bill that will extend the National Flood Insurance Program(NFIP) for one year to September 30, 2011. And H.R. 3081 passed the House of Representatives, which among other items is the authorization to extend current loan limits for mortgages provided through Fannie Mae, Freddie Mac, and the Federal Housing Administration. Passage of the legislation will ensure that current loan limits for single-family residential mortgages will remain in place until September 30, 2011 at 125% of local median home sales prices, up to a maximum of $729,750 in high-cost areas. The floor for FHA is $271,050; the floor for Fannie Mae and Freddie Mac conforming loan limits is $417,000. The bill also appropriates $20 billion so that FHA can continue making loan commitments through the end of 2010.

Everyone in the FHA biz knows that Monday is a big day. FHA will lower its upfront mortgage insurance premium (except for HECM's) while simultaneously increasing the annual premium, which is collected on a monthly basis. This change will affect purchase money and refinance transactions, including FHA-to-FHA credit-qualifying and non-credit-qualifying streamlined refinance loans. (Hawaiian Homelands Section 247 loans are not affected by these changes, for anyone doing business in the state whose motto is "Ua Mau ke Ea o ka 'Āina i ka Pono.")

Private mortgage insurers have been licking their chops for Monday. They have grappled with credit losses on policies, claims of bad policy rescission, and an inability to compete with FHA's prices on new insurance. So with the increase on Monday could come the restoration of competitiveness of private insurance, potentially letting the companies win back market share and rebuild their reserves. And anyone watching that business has seen MI companies increasing riskier loans in somewhat subtle ways. Most believe that the MI companies, as a whole, are still fairly well capitalized. And of course lenders undoubtedly will benefit from the better prices, service and product diversity after Monday's FHA premium changes.

Most investors have credit and guideline overlays, over and above what the government agencies allow for programs.CitiMortgage, currently ranked #5 in volume among lenders right behind #4 GMAC, releases its overlays monthly. Citi's clients are aware of them, but include restrictions on initial & final 92900A and 92900-LT forms, VA Funding Fee information, source of funds documentation requirements, savings documentation, maximum VA loan amounts ($1 million prior to the VA Funding Fee), etc., etc. In other words, in this environment, borrowers had better have proof of anything or any transaction for practically every investor.

On to the fixed income markets. After some intra-day volatility, mortgage (MBS) prices ended Thursday unchanged from Wednesday's closing prices, with about $2.2 billion being sold. 10-yr notes worsened about .125 in price and moving to 2.52%. This was all after new U.S. claims for jobless aid fell last week, while manufacturing in the nation's Midwest region grew faster than expected in September, supporting the view that economic activity picked up a bit in the third quarter. There are, of course, large-scale trends occurring around the world, with commodities on the rise, the dollar sinking, several European countries still wallowing - so one might ask what a few percentage points in an ISM survey or the NY Fed's Empire Index means. It is a valid question.