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The hud change mortgage insurance towards risk based pricing


The governments loan division has changed their requirements for mortgage insurance to be based more on a borrowers risk.

The role of the Federal Housing Administration (FHA) has been critical in helping to keep the mortgage industry from collapsing. FHA loans offer home buyers the opportunity to purchase a new home with as little as three percent for their down payment. FHA loans are similar to conventional loans as they require  home owners to carry mortgage insurance if they are lacking the necessary twenty percent down payment. The ability to have mortgage insurance provides a crucial role for both the lender and the borrower. Without mortgage insurance the lender would not be willing to fund the loan and the borrower would not qualify to purchase without having the required down payment. FHA mortgages are no different than conventional loans in that borrowers have defaulted at a higher rate in the past twelve months with the rapid decline in home prices.

In order to enable FHA loans to be offered with minimal down payment requirements, FHA has recently announced they will be changing how they calculate a borrowers mortgage insurance payments. In the past FHA had a one size fits all approach. This will be changed to more of a risk based modeling system based on a borrowers credit score and loan to value. The higher the loan to value or lower the credit score, their will be price adjustments up for both the monthly required mortgage insurance as well as the required up front mortgage insurance. These changes will be necessary for the FHA to cover losses from home foreclosures and also carry the responsibility of increasing their loan portfolios to finance more home owners in the future.

7-15-2008 ? LoanNetwork.com





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