HUD issued its final rule on June 27, 2005, requiring up-front mortgage insurance premiums (UFMIP) on rehabilitation (Section 203(k)) and condominium mortgages (Section 203(c)) closed on or after January 1, 2006. Prior to January 1, an up-front premium was not required on these types of FHA-insured loans. Implementation of this rule is designed to keep FHA's rehabilitation and condominium loan programs in line with its single family housing (203(b)) program.

For mortgages of more than 15 years, the UFMIP for both a 203(k) and 203(c) loan will be in an amount not exceeding 2.25% of the original insured principal loan amount. (Revised 24 CFR 203.284) For mortgages of 15 years or less, the UFMIP would be no more than 2% of the original insured principal amount of the mortgage. (Revised 24 CFR 203.285) Currently, the UFMIP, regardless of the term of the mortgage, is 1.5% of the original insured principal amount of the mortgage. (See Mortgagee Letters 00-46 and 00-38.) According to the final rule, the UFMIP may be financed into the mortgage amount.

The monthly premium charge and termination schedule, and the FHA-to-FHA refinance UFMIP refund schedule announced in ML 2000-46 and ML 2005-03, respectively, also apply to Section 234(c) and 203(k) loans, i.e., the premium structure for these loans is now identical to that of Section 203(b) mortgages. Condominium and rehabilitation loans will continue to be subject to the annual MIP of .50%. The procedure for remittance of UFMIP on Section 234(c) and 203(k) loans is also the same as Section 203(b) loans.

If you have any questions concerning the UFMIP for condominium and rehabilitation loans, please contact Customer Service at (800) 649-1362, or email the Compliance Department at compliance@docmagic.com.

Melanie A. Feliciano is Assistant General Counsel of Document Systems, Inc. and a member of its Compliance Department.