Finally, to investigate how the jump risk of housing price impacts the valuation of mortgage insurance premiums
, numerical analysis shows the relationships among mortgage insurance premium
, the shock frequency of the abnormal event, the abnormal volatility of jump size, and the abnormal mean of jump size.
HECM borrowers instead pay a mortgage insurance premium
(MIP), which protects the borrower by ensuring his or her heirs are not accountable in the event a balance is owed when the borrower dies.
Under the new rules, borrowers must pay an increased upfront mortgage insurance premium
of 2.25% of the loan amount.
The HMBS allows issuers to securitize the initial loan draw, subsequent loan draws, the mortgage insurance premium
, servicing and guarantee fees, and receive market pricing on the entire loan amount.
Both the monthly and the annually adjusted HECM have an initial mortgage insurance premium
of 2% of the maximum claim amount (the lesser of the value of the home or the FHA loan limit) as well as an annual mortgage insurance premium
of one-half of one percent of the loan balance.
The Bush Administration's FY 2007 budget proposes to increase the FHA multifamily mortgage insurance premium
(MIP) by 32 basis points for most multifamily risk categories, except mortgages for projects with low-income housing tax credits and for risk-sharing programs for GSEs and housing finance agencies.
Households often choose mortgages backed by the FHA or the VA instead of mortgages backed by private insurers because the agencies will insure mortgages that require a considerably smaller amount of cash at closing and will use more liberal underwriting guidelines when evaluating the credit-worthiness of the applicant.(12) For example, the FHA insures mortgages that require smaller down payments and, unlike PMI companies, the FHA allows the borrower to finance both closing costs and the mortgage insurance premium
.(13) In addition, the FHA allows households to use gifts from other for the entire down payment.
Castro singled out as a positive step the reduction in the FHA mortgage insurance premium
(MIP) this year and offered some numbers to support the impact it has had on the market.
These benefits, that include the state and local sales tax deduction, mortgage insurance premium
deduction, educator expenses deduction, tuition and fees deduction and the mortgage debt relief tax benefit, are often referred to as the extenders because they are part of proposed legislation that would extend up to 55 tax breaks that expired last year.
Specifically, the proposal would create a zero-downpayment FHA home mortgage program for families with poor credit that would pay for itself by charging borrowers a higher mortgage insurance premium
. (See next item.) Meanwhile, the proposal threatens to dramatically under-fund and dangerously revamp the Section 8 Housing Voucher program.
To generate a higher yield, the investment in a larger down payment must be large enough to flip the loan into a lower mortgage insurance premium
or interest rate category.
Castro also got an earful about the FHA's decision to the cut its mortgage insurance premium
by 50 basis points.