By now we all know that April 18 brought new increases to FHA's annual mortgage insurance premiums. MIP increased 25 basis points for virtually all "forward" mortgage products. (You have to love the new terminology we use today. We have "reverse" mortgages and then we use the term "forward" mortgages to indicate a regular mortgage product that requires a payment.)
What many of us did not know was that HUD made quite a few other changes in addition to just the premium increase. As we head into the summer home-buying season, it is important to know these changes before you start processing that residential loan.
First, HUD wants us know that "Case numbers should be requested and cancelled in accordance with prudent business practices and existing guidance." Specifically, originators should request case numbers only when the originator has an active loan application for the property and borrower, and originators need to remember to cancel their case numbers if the need arises.
- Starting April 18, the FHA system will require originators to certify that they have a loan application for the borrower and the property.
- The originator must also provide the borrower's name and social security number for all new construction projects including proposed construction and existing construction less than one year old.
- Starting April 18, the FHA system will automatically cancel any uninsured case number that has not had activity in the last six months, unless an appraisal update has been entered, and/or the upfront MIP has been received.
Understanding this last point is very critical, particularly if you are dealing with a property case number that has been transferred from another borrower on your property. HUD considers the following items to be actionable to restart the 6 month clock:
- case number assignment
- completion of appraisal information
- issuance of firm insurance commitment by FHA
- receipt or update of insurance application
- Notice of Return and Resubmissions
HUD does not consider updating borrower names and/or property addresses to be a last action item. Therefore, if you have entered changes to the borrower on a property but have not updated the appraisal or sent in the insurance application, your case number will still be cancelled at the end of six months. To avoid cancellation, you must complete one of the actionable items in bullet points above.
The automatic cancellation is for case numbers issued prior to April 18, 2011, before the MIP rate hike. So for example, if you have a case number issued December 15 with the old premium rates, and you have a new borrower for the property, you need to get your insurance application in prior to June 15 to avoid case number cancellation. A new case number will mean higher MIP premiums, which can cause a real problem if your Good Faith Estimate was prepared using the old numbers. A new case number will also have to underwritten to current FHA standards. All ininsured case numbers issued prior to April 18, 2011 have been automatically cancelled.
If a case number has been cancelled, it will not be reinstated unless the originator "provides evidence that the subject loan closed prior to the cancellation of the case number, such as a HUD 1 Settlement Statement, or ...provides evidence that not reinstating the case number causes an undue hardship to the borrower that is unrelated to the recent changes in premiums and underwriting requirements." (Good luck doing that by the way. Since the hardship cannot be due to the fact that the loan will be more expensive or more difficult to obtain, you may be hard pressed to find an excuse that HUD will actually accept.)
The clock is ticking on these case numbers issued prior to April 18. For a list of case numbers that will be automatically cancelled next month, visit FHA Connection/Single family on HUD's website, http://www.hud.gov/. You can also find a copy of the mortgagee letter 11-10 which deals with the specific facts on case number cancellation and usage.
For more related articles visit http://www.frontier2000.net/.
