Risk-based premiums on subprime loans insured by the Federal Housing Administration will be implemented within two months.
The U.S. Department of Housing and Urban Development announced Thursday that the Bush administration has issued final guidance on FHA mortgage insurance premiums.
Borrowers who are in subprime loans they cannot afford can refinance through FHASecure, an initiative unveiled by Bush last August. The program was expected to help around 240,000 subprime borrowers who have missed up to three payments during the past 12 months.
Thursday's press release said FHA is on pace to refinance approximately 500,000 mortgages into its affordable mortgage product by the end of this year.
The statement noted risk-based premiums will ensure taxpayers do not assume the cost of the FHA expansion. Implementation of the new pricing is scheduled for July 14.
Last month, FHA Commissioner Brian D. Montgomery testified the rollout of risk-based premiums "will ensure the integrity of the FHA insurance fund over the long-term, protect the taxpayer and guarantee that FHA will be around to help struggling homeowners in the future."
"With a flexible premium structure, FHA can fulfill its mission of assisting families who do not have access to prime-rate financing," HUD Deputy Secretary Roy A. Bernardi said in the announcement. "Fair pricing will allow FHA to reach more troubled homeowners without placing excessive risk on its insurance fund."
Current FHA premiums cost 1.5 percent upfront and 0.5 percent annually for all borrowers. The new pricing plan has upfront premiums that range from 1.25 percent to 2.25 percent. FHA, which has reportedly insured more than 34 million mortgages since 1934, can charge as much as 0.55 percent for the annual premium.
"By charging different premiums, FHA will operate like most other insurance companies," HUD said. "Borrowers refinancing into FHA from the subprime market are better off, even with slightly higher mortgage insurance premiums, because FHA insurance gives them access to substantially lower interest rates, and lowers their overall mortgage costs."
FHA Aid Expanded
The Federal Housing commissioner testified today that expanded guidelines at the Federal Housing Administration will benefit about 500,000 subprime borrowers.