Bank was unable to sell FHA loan.

[Dru Steeby]

I got a letter the other day in the mail stating that my bank was unable to sell my recently acquired FHA loan to the secondary market, therefore, that bank will be servicing the loan. The letter also states that the up front mortgage insurance would be returned to me by being applied to the principal and the monthly insurance premium charge is dropped. This leaves me with a few questions:

1.) Is my loan no longer considered an FHA loan?
2.) If I wanted to get my up front insurance back in cash instead of applied to the principal, is that something that I could ask for? I would much rather put that money into a better investment opportunity. 
3.) Are there any legal implications that I should be aware of?

Has anyone else gone through something like this in the past?

Thanks!