greater confidence that their loan decisions can
withstand increased scrutiny from government
regulators and enforcement authorities.
RECENT CHANGES
although Fha insurance and private
mortgage insurance have generally been cost-competitive in
the past, the Fha has raised
its premiums multiple times
within the past few years,
potentially shifting the
scales in favor of private
mortgage insurance.
In October 2010, for
instance, the Fha raised
its monthly mortgage insurance premium (MIP)
on base amounts from a
maximum of 0.55 percent to a
maximum of 0.9 percent or, for
loans with larger downpayments,
0.85 percent.
Just six months later, in april 2011, the Fha again
raised its insurance premium — this time to a
maximum of 1.15 percent or, for loans with larger
downpayments, 1.10 percent. Moreover, this past
Dec. 1, in a hearing held before the house Financial
Services committee, Department of housing
and Urban Development (hUD) secretary Shaun
Donovan stated that additional premium increases
would be under consideration this year.
actions by congress recently have contributed
to a growing sense of displeasure with Fha
offerings, as well. This past December, congress
passed an extension bill that requires an increase
of 10 basis points in the Fha’s annual premiums
over the next 10 years, an increase that will be
phased in over the course of two years.
These changes from the Fha and policymak-ers certainly have affected consumers, but brokers and originators themselves also have been
directly affected by recent Fha actions. The administration has heightened its lender oversight
and enforcement through the Office of General
counsel, which in turn has resulted in hUD’s
Mortgagee review Board sanctioning a significant number of lenders for violations of origination and servicing requirements.
This new focus on enforcement has sparked litigation against brokers and lenders, sometimes
over mere technical errors. In this difficult environment, more and more originators and brokers
have begun working with private mortgage insurers to provide themselves with a supplemental review of their underwriting and grant themselves
BENEFITS
The aforementioned changes in rates and enforcement are enough in and of themselves to
make private mortgage insurance increasingly
appealing for brokers and borrowers alike, but
mortgage professionals who help their clients
weigh the merits of Fha insurance against private mortgage insurance should be familiar with
a number of additional benefits, as well.
Originators should consider private insurers’
flexibility with regards to premium plan structuring. Many private mortgage insurers offer multiple premium plan
structures, and this breadth
of choice often can result
in prices being more competitive and affordable
than some Fha loans.
This also enables brokers and loan officers
to let their borrowers
choose the specifics
of how they pay their
premiums. Brokers
should be familiar with
a few of the most typical
plan structures:
• Monthly premium insurance or zero monthly premium
insurance: Monthly premium is a
payment option that features a coverage
term of one month, with premiums being remitted monthly, as well. Zero monthly features monthly premium rates with no initial
premium required at closing.
• single premium insurance: In this case, a
premium can be paid in full at closing or financed into the loan itself. It’s partially refundable if the mortgage insurance cancels
within five years.
• split premium insurance: a portion of the borrower’s premium is paid monthly and the remainder is financed into the life of the loan
or paid by other approved sources of lending
funds, thus lowering monthly payments.
• level annual premium insurance: This option
includes an annual premium payment with
one identical rate for the first-year premium
and renewal premiums, yet also allows for the
financing of the first year’s premium into the
loan amount.
Often, buyers who are able to contribute at least
5 percent down can find significant cost benefits
in using private mortgage insurance. This may
mean a better financial position for consumers
in the long term by lowering their monthly mortgage payments and providing more equity from
the closing day forward. Furthermore, in many
cases, private mortgage insurance can be canceled when borrowers meet certain criteria and
have built up sufficient equity from a combination
of appreciation and paying down their mortgages.
continued on page 44 »
“Many private
mortgage insurers
offer multiple premium plan
structures, and this breadth of
choice often can result in prices
being more competitive and
affordable than some
FHA loans.”
rohit gupta is chief commercial officer of Genworth Financial Inc.’s U.S. mortgage insurance business.
he is responsible for sales, marketing and products. he helps position Genworth to take advantage of
opportunities created by the recovery of the mortgage market, driving increased sales and providing safer
mortgage opportunities for low-downpayment and first-time buyers. Previously, Gupta was senior vice
president, products and strategy. reach him via alfred King, director of public relations, at (919) 846-3018
or alfred.King@genworth.com.
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