www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 May 30,1991 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 91-26 TO: APPROVED MORTGAGEES SUBJECT: SINGLE FAMILY INSURANCE PROCESSING FOR RISK BASED MORTGAGE INSURANCE PREMIUMS 1. INTRODUCTION 1-1 HOUSING ACT OF 1990. In accordance with the Omnibus Budget Reconciliation Act of 1990 and the National Affordable Housing Act of 1990, the Department will begin to collect risk-based premiums for mortgages insured under the provisions of the Mutual Mortgage Insurance Fund. Paragraph 7 will identify all participating Sections of the Act. This letter provides additional information and clarification to the Mortgagee Letter 91-1, dated January 10, 1991. The risk-based premiums have two components: the upfront premium and the periodic premium, and each loan requires both. 1-2 EFFECTIVE DATE. Risk-based premiums will be effective for loans closed on or after July 1, 1991. 1-3 REMITTANCE REQUIREMENTS - UPFRONT AND PERIODIC. The upfront premium is required to be received within 15 days of the closing date. The upfront premium process is identical to the one-time premium process which it replaces. The periodic premium is calculated annually, but collected and remitted monthly to be received by the 10th of the following month. This is a change from Mortgagee Letter 91-1. The periodic premium will be collected over a set number of years depending on the loan to value ratio of the mortgage. See Exhibit I. The monthly remittance will he made in an aggregate amount with one check, as is the other monthly premium remittance. An important difference is that information about each loan and premium amount represented in that aggregation will also be sent to HUD. This will be discussed in Greater detail in Paragraph 6. An additional difference is that no Advance Notices will be generated in the near term. 1-4 OLD MONTHLY PREMIUMS. The process of assessing and collecting periodic premiums on loans insured from the Special Risk Insurance Fund and the General Insurance Fund, and on other loans with commitments before September 1, 1983, remains unchanged. Advance Notices will continue to be sent; monthly remittances will be expected. KEEP THEM SEPARATE FROM THE RISK-BASED MONTHLY PREMIUMS. _____________________________________________________________________ 2 2. CALCULATING THE UPFRONT AND ANNUAL PREMIUM 2-1 CALCULATING THE UPFRONT PREMIUM. Mortgagees determine the upfront mortgage insurance premium by multiplying the base loan amount by the premium factor rate, which is currently 3.8%. The rate will change according to the fiscal year in which the loan closes. See Exhibit I. Example: Base Loan Amount X Premium Rate Factor = Upfront Premium $87,900.00 X .03800 = $3,340.20 A worksheet for determining upfront premium or the base loan amount is included as Exhibit II. The term of the loan is not a factor in the upfront premium calculation. 2-2 ADJUSTABLE RATE MORTGAGES. Premiums for ARMs will be charmed as if the first year's interest rate applies through the life of the mortgage. 2-3 CALCULATING THE PERIODIC PREMIUM. The periodic premium will be based on the base amount of the loan, with the upfront premium subtracted out if it was financed. The annual rate of the periodic premium is .5% of the average outstanding principal balance, regardless of pre-payments or delinquencies. Mortgagees will determine the annual premium by one of several methods: - Straight calculation method, - Premium factor method, or - Amortization schedule method. All methods are acceptable; they yield results very similar and HUD will tolerate small differences. Worksheets for calculating the annual premium are provided as a convenience and are included in Exhibit III. The worksheets are for use by loan servicing to determine the amortization of the annual premium. Annual mortgage insurance premium factors are contained in the HUD publication titled Amortization, Insurance Premium and Outstanding Principal Balance tables (FHA No. 2025). Mortgagees should maintain a record of the length of the period over which the periodic premium is due. This will vary from loan to loan. 2-4 PROPERTY DISPOSITION CASES. On property disposition sales, use the contract sales price o calculate the loan-to-value for the purpose of determining the term of the annual premium, after implementation of this new premium structure. _____________________________________________________________________ 3 2-5 STREAMLINE REFINANCES. This paragraph amends the streamline refinance procedures referenced in paragraph IV of Mortgagee Letter 91-1. All mortgages, regardless of date closed (executed), that are subsequently refinanced under the streamline refinance program will be subject to the annual premium. A streamline refinance without an appraisal shall be considered as having a loan to value ratio of less than 90% for purposes of determining the term of the annual premium. Lenders shall continue to call the Single Family Insurance Phone Center at (703) 235-8117 to obtain the upfront mortgage insurance premium refund credit amount. 3. LATE CHARGE AND INTEREST OBLIGATION 3-1 4% LATE CHARGE ASSESSED - AFTER 15 DAYS. Late charges on upfront payments must be paid if remittance is received more than 15 days after the mortgage closing date. If the premium payment is received on or alter the 16th calendar day, a 4% late charge is assessed. For example, a premium amount of $3,340.20 will result in late charge fees of $133.60 due HUD. 3-2 4% LATE CHARGE ASSESSED FOR MONTHLY PAYMENT. Late charges on the monthly payment must be paid if the remittance is received after the 10th of the month in which it was due. 3-3 INTEREST ASSESSED - AFTER 30 DAYS. Interest charges on monthly and upfront premiums must be paid if remittance is received more than 30 days after it is due. Interest is accrued daily from the premium due date (not the grace period). The interest payment formula is premium amount multiplied by the daily interest rate factor, multiplied by number of days late. 3-4 INTEREST RATE. The Premium Telephone Service Center may be contacted at (703) 235-8117 for the latest interest rate published by the Department of the Treasury as the Value of Funds Rate. 3-5 DAILY INTEREST RATE FACTOR. Annual interest rate expressed as a decimal divided by 365 rounded to the fourth place to the right of the decimal. _____________________________________________________________________ 4 4. HOW TO PAY THE UDFRONT PREMIUM 4-1 ACH. Mortgagees are encouraged to remit the upfront premium by the Automated Clearing House program (ACH). There is no difference from the process already used for one-time premiums, except for planned improvements. The ACH method allows mortgagees to transfer upfront remittances to HUD electronically; reducing the possibilities of late charges and giving mortgagees greater control over the remittance process. To obtain more information about the ACH program, you may call (703) 235-8117. 4-2 WHERE TO SEND CHECK. Mortgagees may mail the upfront remittances and form HUD-27001 to the following address: HUD Upfront Premium P.O. Box 100569 Atlanta, GA 30384. Do not send certified mail to the Post Office Box. If a private courier service is used, send form HUD-27001 along with the check to: Upfront Premiums Citizens and Southern National Bank Wholesale Lockbox Department (3SSE) 6000 Feldwood Road College Park, GA 30349. 5. HOW TO PAY THE MONTHLY PREMIUM 5-1 WHO. Each HUD approved mortgagee shall designate one office to submit the monthly remittance. 5-2 ACH. The capability will be developed to accept monthly premium payments through ACH. We are planning for the route into the electronic lockbox to be the same as for the upfront premium. More information on this service will be announced later. 5-3 WHERE TO SEND CHECK. A single check for the monthly collections of all risk-based premiums should be mailed with HUD Form 2748 to: HUD Risk-Based Insurance Premiums Drawer CS 198053 Atlanta, GA 30384-8053 Do not send a monthly premium with an upfront premium. Do not send certified mail to the Post Office Box. _____________________________________________________________________ 5 If a private courier service is used, send HUD Form 2748 along with the check to: HUD Risk-Based Insurance Premiums Citizens and Southern National Bank Wholesale Lockbox Department (3SSE) 6000 Feldwood Road College Dark, GA 30349 5-4 WHEN. On a monthly basis mortgagees shall remit to HUD to be received by the 10th of each month 1/12 of the total of all annual Single Family Premiums for all mortgages in the mortgagee's Servicing Portfolio for the month, or mortgagees may exclude payment on loans for which they received no monthly payment from the homeowner. 5-5 FORM TO BE USED. HUD Form 2748 should be sent along with one check to cover all cases. To help the Department separate risk-based premiums from our traditional monthly premiums please include the letters RBP after the title Premiums Remittance Summary on form 2748 and also include the letters RBP on the check. Fill in blocks #1 through #3, block #4 parts p, q, r and s, and block #5 part g only. See Exhibit IV. 6. INFORMATION REPORTING FOR MONTHLY MORTGAGE INSURANCE PREMIUM 6-1 REQUIREMENTS. Although the monthly remittance for risk-based premiums will be a single check and a single remittance form, the Department will be applying the payments at the loan level. To accomplish this HUD requires information detailing all the risk-based premium loans in the mortgagee's portfolio and the premium paid for each. We encourage the use of electronic media for sending this information every month. Magnetic tape or personal computer disk will be accepted. The specific data requirements appear as Exhibit V. 6-2 SUBMISSION. Loan data should be sent at the same time the premium payment is made. But they go different directions. Send the data to: HUD Risk-Based Premiums P.O. Box 23296 Washington, DC 20026-3296 When sending tapes and diskettes, be sure to include an address to which we should return them. _____________________________________________________________________ 6 6-3 RESOLVING DIFFERENCES. The Department is in the process of contracting for the performance of the loan level reconciliation. The reconciling agent will be authorized to contact mortgagees to resolve reconciliation and collection issues. 7. LOANS REQUIRING RISK-BASED PREMIUMS These MIP changes are applicable to mortgages insured under the Mutual Mortgage Insurance Fund, i.e., National Housing Act Sections 203(b), 203(h), 203(i) and 203(n). This includes mortgages insured under Section 203(b) pursuant to Sections 244 (coinsurance), 245 (graduated payment mortgages and growing equity mortgages, and 251 (adjustable rate mortgages). Excluded are condominium GPMs, GEMs, and ARMs which are not insured under Section 203(b). Also excluded are any Section 203(b) mortgages insured pursuant to Sections 233(e) (older declining areas), 238(c) (military impacted areas), 247 (Indian reservations) and 248 (Hawaiian home lands), since those mortgages are not obligations of the Mutual Mortgage Insurance fund. Mortgages insured under the Section 244 coinsurance program have not previously had a one-time mortgage insurance premium; this is the only change in coverage. Sincerely yours, Arthur J. Hill Assistant Secretary for Housing-Federal Housing Commissioner Attachments _____________________________________________________________________ Exhibit I The following tables illustrate the operation of the risk-based premium payment for each fiscal year: FISCAL ANNUAL YEAR UPFRONT LOAN-TO-VALUE PREMIUM PREMIUM 3.80% 1991 89.99 + UNDER .5% 5 YEARS + 1992 90.00 - 95.00 .5% 8 YEARS 95.01 + OVER .5% 10 YEARS FISCAL ANNUAL YEAR UPFPOMT LOAN-TO-VALUE PREMIUM PREMIUM 3.00% 1993 89.99 + UNDER .5% 7 YEARS + 1994 90.00 - 95.00 .5% 12 YEARS 95.01 + OVER .5% 30 YEARS FISCAL ANNUAL YEAR UPFRONT LOAN-TO-VALUE PREMIUM PREMIUM 2.25% 1993 89.99 + UNDER .5% 11 YEARS + 90.00 - 95.00 .5% 30 YEARS 95.01 + OVER .55% 30 YEARS _____________________________________________________________________ EXHIBIT II WORKSHEET FOR DETERMINING UPFRONT PREMIUM To identify the Base Loan Amount: Divide the original mortgage amount $_______________ By the Premium Factor Rate Plus 1 _______________ (e.g., 1.038) Base Loan Amount = _______________ The Upfront Premium is determined by: Multiplying the Base Loan Amount $_______________ By the Premium Factor X_______________ UFMIP = _______________ _____________________________________________________________________ Exhibit III CALCULATING THE ANNUAL PREMIUM 1. Using Annual Mortgage Insurance Premium Factors Base Loan Amount $______________________________ (Interest Rate ____) (Term of Loan ____) _______________________________ (Premium Year ____) Annual Premium Factor x______________________________ Annual MIP =$______________________________ 2. Using Outstanding Principal Balance Factors Base Loan Amount $______________________________ First Month Outstanding Principal Balance Factor x____________ First Month UPB =$______________________________ Base Loan Amount $______________________________ Twelfth Month Outstanding Principal Balance Factor x__________ Twelfth Month UPB =$______________________________ First Month UPB $______________________________ Twelfth Month UPB $______________________________ First and Twelfth Month Total =$______________________________ First and Twelfth Month Total $______________________________ Divided by Two ___________-2_________________ Average UPB =$______________________________ Average UPB $______________________________ 1/2 of 1% (.005) x_________.005_________________ Annual MIP =$______________________________ _____________________________________________________________________ Mortgagee Letter 91-26 Exhibit IV __________________________________________________________________________ U.S. Department of Housing and Urban Development Premium Remittance Summary __________________________________________________________________________ ******************************************************************** * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * ******************************************************************** __________________________________________________________________________ form HUD-2748 (8/89) Page 1 of 2 _____________________________________________________________________ Mortgagee Letter 91-26 Exhibit IV __________________________________________________________________________ U.S. Department of Housing and Urban Development premium Remittance Summary __________________________________________________________________________ ******************************************************************** * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * ******************************************************************** __________________________________________________________________________ form HUD-2748 (8/89) Page 2 of 2 _____________________________________________________________________ Exhibit V DATA REQUIREMENTS FOR MONTHLY DETAILS ON PERIODIC PREMIUMS 1. Include all cases in your portfolio for which you are paying a periodic risk-based premium. 2. We encourage using electronic media. The specifications for the magnetic tapes and diskettes are: o Tape 9 track, 1600 or 6250 BPI EBCDIC Labeled with no leading tape mark Blocked records, 100 records per block Record length = 80 bytes Blocksize = 8000 o Diskette 3 1/2" or 5 1/4" low or high density DOS formatted file ASCII Records delimited by CR and LF Characters File stored in root directory as: RISKBASE.DAT The record layout is attached. 3. A hard copy report may be sent instead of tape or diskette. The order of the report fields is shown on the third pane. Maximum field lengths are the same as those on the second pace. _____________________________________________________________________ RECORD LAYOUT Field Type: A - Alpha Data Element Name Length N - Numeric HEADER RECORD Header Record ID 1 A (H=Header) Mortgagee ID 5 N Remittance Year 4 N DETAIL RECORD Detail Record ID 1 A (D=Detail) Mortgagee ID 5 N Remittance Year 4 N Remittance Month 2 N Premium Due Year 4 N Premium Due Month 2 N FHA Case Number 11 A (NNN-NNNNNNNC) Mortgagor Last Name 22 A Outstanding Principal Balance 6 N Premium Remittance Amount 5 N-2 (IMPLIED DECIMAL) Late Charge Remittance 5 N-2 Interest Charge Remittance 5 N-2 Adjustment 5 N-2 Adjustment Reason Code 1 A TRAILER RECORD Trailer Record ID 1 A (T=Trailer) Mortgagee ID 5 N Remittance Year 4 N Remittance Month 2 N Calculation Method 2 A Sum of Records 7 N Sum of Premium 10 N-2 Sum of Late Charges 10 N-2 Sum of Interest 10 N-2 Sum of Adjustments 10 N-2 CONTROL RECORD Control Record ID 1 A (Control) Mortgagee ID 5 N (Blank) Remittance Year 4 N (Blank) Remittance Month 2 N (Blank) Sum of Records 7 N Sum of Premium 10 N-2 Sum of Late Charges 10 N-2 Sum of Interest 10 N-2 Sum of Adjustments 10 N-2 _____________________________________________________________________ The corresponding format for a keying service would look approximately like the following: MORTGAGEE NUMBER:_____________ REMITTANCE YEAR _____ MONTH_____ Outstnd. Prem. Due: FHACase Mtgor Premium Prin. Late Interest Adjst Adjst Calc. Year Month Number Name Amount Balance Charge Charge Amount Code Meth. TOTALS ____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Year Month Item Count Totals ------------------------------->