Beginning mid-April, 2010, if an FHA refinance loan transaction includes both an upfront mortgage insurance premium (UFMIP) and a refund of mortgage insurance premium (MIP Refund) on the original FHA loan that is being refinanced, the net amount of UFMIP, MIP Cash, if any, and the MIP Refund is reflected currently in Block 3 of the GFE and Line 902 of the HUD-1 Statement (hereinafter referred to as the "net method").  Previously, only the full amount of UFMIP and MIP Cash, if any, were reflected in Block 3 of the GFE and in Line 902 of the HUD-1 Statement.

For example, if the amount of UFMIP is $4,000.00, MIP Cash is $.53 and the MIP Refund is $1,500.00, one would see UFMIP in the amount of $2,500.53 reflected in Block 3 of the GFE and in Line 902 of the HUD-1 Statement.  Prior to mid-April, 2010, only the amount of $4,000.53 would have been reflected in Block 3 of the GFE and in Line 902 of the HUD-1 Statement.  (Note that the full amount of UFMIP ($4,000.53) would be considered a finance charge that is factored into the APR calculation for TILA purposes whether or not UFMIP is netted with the MIP Refund.)

Note that the DocMagic user does not have to enter UFMIP, MIP Cash, if any, and/or the MIP Refund differently in DocMagic or their loan origination system (LOS) in order for these items to be disclosed on the GFE and HUD-1 under either one of the methods described in the first paragraph above.  UFMIP, MIP Cash, if any, and the MIP Refund are each entered or imported separately into the DocMagic software. In other words, the two different methods described above for handling UFMIP and MIP Refund result from the treatment of these two different methods on the form level. 

DocMagic's Compliance Department made this instant, sweeping change based on clear, direct communication from HUD that UFMIP and the MIP Refund must be netted. However, when later re-visiting this issue with HUD, HUD indicated more flexibility by allowing UFMIP and the MIP Refund to either be netted or treated separately.  According to DocMagic's HUD contact, as the Federal Housing Administration (FHA) allows such flexibility, it was adopting a similar approach.

HUD further advised that if treated separately, then the MIP Refund should not be disclosed on the GFE, and it was not required, but could be, disclosed on the HUD-1, such as on the HUD-1 Addendum. 

A subsequent conversation with FHA confirmed that either one of the methods described above is acceptable.  If using the net method, the "unofficial" advice of FHA is to reflect the full amount of UFMIP and the MIP Refund elsewhere in the loan documents if they are not disclosed in the HUD-1 Statement.  (In the DocMagic software, the HUD-1 Addendum reflects the full amount of UFMIP, MIP Cash, if any, and the MIP Refund.)  FHA advised that the net method would be acceptable, because where there is an MIP Refund, the Refund is never paid to the borrower; rather, it is applied to UFMIP, reducing the amount of UFMIP that the borrower owes in the new refinance transaction.  For example, if the MIP Refund is $1,500.00, and UFMIP in the new loan transaction is $4,000.00, FHA will require the borrower to pay only $2,500.00 in UFMIP. 

FHA further advised that if, on the other hand, UFMIP and the MIP Refund are treated separately, the MIP Refund should be disclosed somewhere on the HUD-1 to show a reduction in the amount owed by the borrower at settlement.  Our contact at FHA suggested entering the MIP Refund in the 200 series of the HUD-1.

Based on feedback received from both HUD and FHA, DocMagic's Compliance Department has decided that the preferred treatment of UFMIP and MIP Refund would be to treat these two items separately, primarily because the MIP Refund is associated with the "old" FHA loan that is being refinanced, not the current transaction under which a GFE and HUD-1 Statement would be required.

Accordingly, beginning June 21, 2010, DocMagic's default for handling UFMIP and the MIP Refund will be to treat these two items separately such that the full amount of UFMIP together with any MIP Cash would be reflected in Block 3 of the GFE and in Line 902 of the HUD-1 Statement.  The amount of the MIP Refund will not be disclosed in the GFE, but it will be disclosed in the HUD-1 Addendum.  For these items to be reflected properly in the GFE and HUD-1 Addendum, UFMIP and any MIP Cash should be categorized as a "Lender-Required (Block 3)" charge, and no category should be assigned to the MIP Refund so that it is not disclosed in the GFE, but is disclosed on the HUD-1 Addendum.

Therefore, customers who have disclosed the GFE to borrower(s) using the net method prior to June 21, 2010, but are closing after June 21, will need to request from DocMagic's Customer Service Department, at (800) 649-1362, that this version of the HUD-1 Statement (HUD1.MSC-NET) be substituted for their particular worksheet so that Line 902 of the HUD-1 shows the net amount as well.  Otherwise, the GFE and HUD-1 will reflect inconsistent methods for handling UFMIP and the MIP Refund.

If you have any questions concerning the contents of this article, please contact DocMagic's Compliance Department.