FHA Insurance Premium Changes

by Michael Shohoney September 2, 2010 06:10

Yesterday HUD announced (Mortgageee Letter 2010-28) that the premium factors for FHA mortgage insurance will change for loans where the case number is assigned on or before October 4, 2010.  The upfront premium factors are lower while the annual renewal factors are higher.  The new premium factors are:

Upfront Premium Factor--100 Basis Points (i.e. 1.0)

Annual Renewal Factors for loans with a term greater than 15 years--LTV equal to or less than 95%, 85 Basis Points (i.e. 0.85).  LTV greater than 95%, 90 Basis Points (i.e. 0.9)

Annual Renewal Factors for loans with a term equal to or less than 15 years--LTV equal to or less than 90%, No renewal premium.  LTV greater than 90%, 25 Basis Points (i.e. 0.25)

 Additionally, the premium factors for the HECM (Home Equity Conversion Mortgage) program have changed as well.  The new factors for these reverse mortgages are:

Upfront Premium Factor--200 Basis Points (i.e. 2.0)

Annual Renewal Factor--125 Basis Points (i.e. 1.25)

 Since the ZMath Engine, ZMath, eZMath, ZMathReverse and eZMathReverse products all allow the user to enter the insurance factors for all products, a change is not required to your software.  However, changes are required for your inputs (however you may handle that).  Be sure to begin to use the correct premium factors for all loans whose case number assignment occurs on or before October 4, 2010.

 As always, we are here to help.  If you have problems or questions regarding these changes and how it will affect your system(s), please do not hesitate to contact us.

Compound to Fill the Void?

by Michael Shohoney April 1, 2010 06:37

In basic chemistry, we learn that two or more elements combine to form a compound.  Those compounds (along with the elements that form them) form our world.

Let's consider your systems and compliance needs.  Are there voids in those systems?  Be honest.  If you're like most in the industry, there have to be some holes that need to be filled.  Well, we have the solutions to your problems.  Let's take an example.  Do you have issues with the HUD requirements (i.e. the new disclosures, the GFE, the HUD 1 and 1A, closing docs, etc.)?  If you take two of the ZMathElements, you form your very own ZMathCompound.  Take the ZMathElements, ZMathGFE and ZMathAggEscrow and you have a compound that will plug any void that HUD requirements throws your system.  And, you can have the solution implemented virtually overnight.

How about another example?  Let's say you want to offer loan scenarios on your web site.  As a part of that, you want to calculate a payment amount and an APR.  Should you write your own?  Should you try to shoe horn your current system information into it?  No way!  We have ZMathElements that would work nicely for just that sort of thing.

The lesson is, why struggle with issues that can easily be addressed by an Element or Compound.  Contact us and let us help formulate your solution.


by Michael Shohoney February 18, 2010 07:27
Math Corporation today made its next product, ZMathElements, available for license.  ZMathElements, as the name infers, are some of the base elements (i.e. functions and tasks) that make up the ZMathEngine.  It is targeted to those that only need a part or parts of the ZMathEngine, instead of the entire solution.  Go check out the product page and let us know what you think.  If you have Elements that you'd like to see, let us know.

New Years Resolution

by Michael Shohoney January 7, 2010 05:33
I'm not one that makes New Years resolutions very often as I see them as a formula for failure because we always set goals that are unrealistic.  However, as I sat down and assessed Math Corporation's 2009, I saw one glaring issue that needed to be addressed for improvement in 2010 and that was my own performance in blog posting here, on Twitter and Facebook!  So, as I sit here, I resolve that I will try to be more regular in my blog postings going forward.  We would still love to have input from you, our users, for blog postings and would love to have submissions that we would post.  So, if you have something you would like to see addressed, let us know!  Here's to a great 2010 for us all.

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by Michael Shohoney July 14, 2009 10:12

Come follow us on twitter.  I don't know how many tweets you'll see but we'd love to have you follow along.  If you'd like, we'll follow you too.  Happy tweeting!




by Michael Shohoney May 27, 2009 11:29
Math Corporation is announcing the addition of a new version of our component products.  We now have Silverlight versions available for distribution.  If your current or future development plans include Silverlight, contact us for further information.


by Michael Shohoney May 12, 2009 09:51

Well, I am long overdue for a posting to this blog.  I'm sure all of you know how it goes when you get swamped by a project or two or three or....  Anyway, it's tough to find a few free moments.  I will have to try to be better about my responsibilities out here.

Our newest news is that we now have a Facebook page.  We invite you to view it at Facebook.  Just search us out and become a fan.  Let us know if you have any troubles finding it.

An Interesting Development

by Michael Shohoney March 24, 2009 10:55

There has been an interesting development in lending that is borne of this economic crisis we're in.  What is it?  It it borrowers that take an FHA loan even if they have a sufficient loan-to-value ratio.  What does this do?  It requires that they pay the funding fee and mortgage insurance premiums for a minimum of five years.  This is certainly an expense that most borrowers avoiided if they had at least an 80% loan-to-value ratio.  However, since some lenders are only allowing FHA originations, borrowers are being forced into this added expense if they want a loan.  In a future post, we will be showing you how to use eZMath and ZMath to originate loans with mortgage insurance, including FHA.

Balloon Loans

by Michael Shohoney March 2, 2009 10:09

A question that we often deal with is how to structure balloon loans.  In a future post, we will look at how to mechanically structure balloons using eZMath and ZMath.  In this post we are going to discuss the different types of balloon loans and how they are structured.

 The first type of balloon loan is the type where a customer would like to pay a certain amount per month and the balance remaining on the loan with the final payment.  In order to have a balloon (i.e. a balance remaining at term), the desired payment must be less than the regular payment amount that would be calculated given the other terms (i.e. interest rate, term and amount) of the loan.  At the same time, it is usually essential that the payment amount desired by the borrower be enough that amortization (i.e. balance reduction) is occurring.  If those two criteria are met and a lender's policy will allow balloon lending, then the loan can be structured in this way.

 The second type of balloon loan is the type where the customer would like a certain amount of the loan to be left remaining (i.e. unamortized) at term.  That remaining balance will be paid with the final payment.  What occurs with this type of loan is that once the final balance is determined or set by the borrower, the regular payment amount is calculated.  That payment amount is made for one less than the number of payments in the loan and the final payment is the balance remaining plus the regular payment amount.  These types of balloons are often used when the borrower is expecting some kind of cash flow that coincides with the final payment of the loan (i.e. sale of the collateral, etc.) and the balance remaining equals or is slightly less than that cash flow.

 The final type of balloon loan is the type where the term upon which the payment amount is calculated (the amortization term) is less than the actual term of the loan.  We call this a prepay balloon.  This is the type of balloon loan that we commonly see in mortgage lending.  Sometimes it is termed a "X/Y Balloon Loan" where X is the amortization term and Y is the actual term (i.e. 30/7 Balloon Loan).  In this type of balloon, the payment amount is calculated based on the amortization term.  That payment amount is made for the number of payments in the actual term.  The resulting balance at term is paid in full (or refinanced) with the final payment.

That summarizes the types of balloon loans seen in the lending industry.  Our loan calculation software packages, eZMath and ZMath, easily calculate all three types.  In a posting in the Calculators 101 section in the next few days, we will look at how to structure each type.  In the mean time, if you ever have any questions on subject matter or the mechanics of running our software, please feel free to contact us.

Options and Variations

by Michael Shohoney January 26, 2009 09:37

Okay, you've set your defaults and you've selected your loan type.  Now what?  Well, unless everything is set exactly the way you want it and you know that for sure, we suggest that you look at the Options and Variations screen.  You can do this one of two ways.  First, if you check the box at the bottom of the Loan Type screen and click Submit, you will be taken to the Options and Variations screen before you're taken to the entry screen.  If you do not check the box, you can access the Options and Variations screen by click on that tab from the data entry screen.

Once you're in the Options and Variations screen, you can choose to change a few of your defaults, if necessary, on a loan by loan basis.  Or, you can use this screen to add features to your loan.  Let's look at what defaults we can change first.

1.  Interest Type--You can change from simple to Add-on or discount, if applicable.  This is highly unlikely but is there in case you need it.

2.  Basis--You can change the accrual basis.  This is probably the most used of all of these.

3.  Odd Interest Adj--This would be the second most popular default change.

4.  Prepaid basis

 Now let's look at the loan features that we can change.  I will list all of them here.  Each loan type is set up to prohibit selection of any options that do not apply to that particular loan type.  So, if you do not see one listed in your screen, that means that that option is not available for your loan.

1.  Balloon--Select this if your loan has a balloon payment.

2.  Construction--Select this if your loan has a construction phase.  This can be construction only or construction permanent financing.  All calculations will be done as documented by Appendix D of Regulation Z.

3.  Insurance--Select the appropriate insurance type if your loan has insurance.  We offer standard credit life/accident and health (i.e. disability) insurance, private mortgage insurance, FHA MIP and VA insurances.

4.  Accelerated--Select this if your loan is going to be structured as an accelerated biweekly or weekly payment loan.  An accelerated biweekly (or weekly) loan is a loan where the standard monthly payment is divided by two (or four for weekly) and the resulting payment is collected every two (or four for weekly) weeks.  A new term is calculated based on the new payment amount.

5.  Buydown--If your loan has an interest rate buydown feature, select this.

6.  Skipped Payments--If you loan has payments that are skipped each year, select this option.

7.  Differing Freq.--This is an highly unusual option but it allows the interest and principal of the loan to be paid on differing frequencies or on different dates.  This is usually used in commercial lending.  For example, interest may be due monthly but principal is due quarterly.

 Once you have selected the options and variations that apply to your loan (yes, you may choose more than one at a time), click on OK and you will be taken to the data entry screen.  If applicable, more panes (i.e. data entry areas) will be displayed to take the information for each of the options you've chosen.  In future postings I will discuss the data entry process and look at each of the options.