Less than a month after Senate Democrats urged the Obama administration to cut mortgage insurance premiums on loans insured by the Federal Housing Administration, their wish has been granted.
A Dec. 18 letter signed by 18 prominent Democrats in the U.S. Senate said, “we believe now is an appropriate time for the FHA to reexamine its premium levels to determine whether they can be reasonably and safely lowered.”
The senators highlighted how a 145 percent hike in annual premiums since 2010 has prevented an estimated 375,000 potential home buyers from realizing home ownership.
The letter suggested that lower premiums could help speed up the recovery of FHA’s Mutual Mortgage Insurance Fund, which, at an 0.41 percent capital ratio, still sits below the congressionally mandated 2 percent.
On Wednesday, the White House issued a statement indicating that
annual mortgage insurance premiums on FHA-insured loans will be slashed by 50 basis points to 0.85 percent.
“The new premium level is fully consistent with the FHA’s commitment to continue strengthening its financial health through growing reserves,” the White House statement said. “At the same time, full documentation and continued strong underwriting means lending will remain prudent and sustainable — benefiting both homeowners and FHA.”
The statement noted that even after the reduction, FHA’s annual premiums will be higher than historical norms.
Several dozen diverse groups — including the Mortgage Bankers Association, the National Association of Federal Credit Unions and the NAACP –indicated their support for a reduction in FHA premiums in a letter Wednesday to Department of Housing and Urban Development Secretary Julián Castro.
They highlighted how low-income consumers and Americans of color have been kept out of the housing market as a result of higher FHA premiums.
In addition, the letter suggested that higher premiums might be hurting the Mutual Mortgage Insurance Fund.
“We believe it is now time for FHA to enable more households to access homeownership by reducing mortgage insurance premiums while still maintaining fiscal prudence and continuing the trajectory toward full replenishment of the fund,” the joint coalition letter stated.
The reduction in FHA premiums applies to purchase financing, though refinance rates will see a similar reduction.
The administration promises that
FHA will maintain sound underwriting standards with full documentation requirements and prudent evaluations of borrowers’ ability to sustain payments.
As many as 250,000 home buyers are expected to be enabled to purchase a home, while more than 800,000 existing loans will benefit through refinances.
“In total, this action will help millions of families save billions of dollars in mortgage payments in the coming years, helping to support the housing market recovery,” the statement said.
As part of an expansion of responsible lending to creditworthy borrowers, additional steps are planned by the president in the coming months to
cut red tape and clarify lending standards.
To allay concerns about the impact of lower premiums on the Mutual Mortgage Insurance Fund, the White House noted that FHA is projected to add $7 to $10 billion annually in new capital reserves and maintain a positive trajectory for the fund — in part due to improved risk management and credit policies that remain tighter than historical norms.
President Obama plans to announce the lower premiums during an event at Central High School in Phoenix Thursday. Castro will accompany the president.
The lower FHA premiums will make government financing more competitive with conventional financing. Fannie Mae and Freddie Mac announced in December that they would begin offering 97 percent loan-to-value programs.
After this story was published, HUD issued a statement indicating that
the new premiums will take effect on all new FHA-insured loans endorsed toward the end of January. A mortgagee letter will be released shortly detailing the new pricing structure.
