Sunday, May 11, 2008

Draft Analysis of Cost Impacts of FHA Risk Based Pricing.

As I indicated in earlier post HERE I expect that the July move of FHA to risk based pricing for single family loans will be controversial. One reason is the differential costs impacts that the change will have on borrowers based on their credit scores and their loan to value ratios.

I have calculated and prepared a DRAFT PDF table HERE which illustrates those differential impacts for loans with terms of greater than 15 years using the data from the premium table that appears the draft Federal Register Notice. Some preliminary conclusions:

New Borrowers with LTV's greater than 95%
  1. ALL will see their ongoing monthly premium increase by 10%.
  2. Those with credit scores of between 500-639 will see up front premium cost increases that range from 17% to 50%.
Borrowers with credit scores below 500 will be limited to LTV's of 90% or Less.

Up Front Premium Decline for Many New Borrowers with Credit Scores Above 600.
I'm sure that HUD will sell this benefit strongly.
  1. For most borrower with credit scores above 600 the upfront premium will either stay the same or decrease by 17%.
  2. The sole exception is that borrowers with credit scores between 600-639 who want a greater than 95% LTV loan. Upfront premiums for those those borrowers will increase by 17%.
As I expect I will tweak/correct this DRAFT table in the future, I have added a version number; the current version is 1.0. Future updates will reference a new version number to signal changes.

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