Mortgage Insurance Freedom Act
H.R. 5508, titled the Mortgage Insurance Freedom Act, would restrict the collection of annual mortgage insurance premiums (MIP) for FHA-insured loans once the remaining insured balance falls to 78 percent or less of the lower of the original sale price or the origination appraised value. The restriction applies to mortgages endorsed for FHA insurance after the bill becomes law. The bill also sets up rulemaking and outreach requirements so borrowers can demonstrate that their insured balance meets the threshold, and creates an exception related to the capital health of the Mutual Mortgage Insurance Fund (MMIF). Specifically, if the MMIF capital ratio falls below 2 percent, the restriction may not apply to certain loans in which premium collection was ongoing at the moment of the ratio drop, while it may continue to apply to others. The intent is to reduce borrower costs as loans amortize, but not to retroactively change terms on existing pre-enactment loans.
Key Points
- 1Threshold for no annual MIP collection: The Secretary may not collect annual MIP on a mortgage once the remaining insured principal balance (excluding premium-related balance) is 78% or less than the lower of the dwelling’s sales price at origination or the appraised value at origination.
- 2Calculation details: The remaining balance used to trigger the restriction excludes the portion of the balance attributable to the premium itself.
- 3Exceptions tied to MMIF health: If the Mutual Mortgage Insurance Fund’s capital ratio falls below 2 percent, two effects occur:
- 4- The restriction may not apply to mortgages for which the Secretary was collecting premiums on the date the ratio fell below 2%.
- 5- The restriction continues to apply to mortgages where the Secretary had already stopped collecting premiums before the date the ratio fell below 2% because the remaining insured balance met the threshold.
- 6Rulemaking and implementation: Within 180 days after enactment, the Secretary must issue rules to implement the restriction, including a process for mortgagors to demonstrate that their insured balance is at or below the threshold.
- 7Outreach and education: The Secretary must conduct outreach to inform borrowers about the premium restriction and how to demonstrate their eligibility.
- 8Applicability: The changes apply only to mortgages endorsed for FHA insurance after the enactment date; existing loans or loans endorsed before enactment are not affected.