Updated: July 3, 2008 (Revisions are highlighted in yellow)

With the recent increased interest in FHA loans, we have received many questions regarding the impact of high cost tests on certain fees and charges, including upfront mortgage insurance premiums (MIP) paid by borrowers in connection with FHA loans.  For purposes of the federal Section 32 and most state-specific high cost tests, the fact that the loan is HUD-insured has no impact on the respective high cost tests: finance charges (including MIP) paid to HUD are points and fees and, consequently, are included in the high cost tests.  However, some state-specific high cost tests apply different rules.

Based on a review of our high cost memos, all of which are available online here, the following is a list of those states that offer some type of exclusion from their respective high cost tests for either FHA loans or some or all FHA fees, including MIP:

High Cost Tests That Exclude FHA Loans: District of Columbia and Indiana

High Cost Tests That Exclude Fees and Charges (including MIP), if Paid to HUD: Connecticut1, Georgia, Ohio, Maine (but only up to 1 point) and South Carolina

High Cost Tests That Exclude Mortgage Insurance Premiums Generally: New Jersey, New Mexico and New York.

Except as indicated above, absent some other independent basis for excluding the fee or charge from a high cost test, finance charges, including upfront MIP, are points and fees for purposes of a state's high cost test and the federal Section 32.

Please contact DocMagic, Inc.'s Compliance Department if you have any questions or comments regarding this article.

1 All "premiums, fees or any other amounts paid to a governmental agency" are excluded from the definition of "prepaid finance charges" for purposes of the Connecticut audits described here.