FHA Lowers Annual Premium To Reduce Cost For Home Owners And Buyers

FHA Lowers Annual Premium To Reduce Cost For Home Owners And Buyers

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WASHINGTON – As the nation’s housing market continues to improve, U.S. Housing and Urban Development Secretary Julián Castro announced Thursday the Federal Housing Administration (FHA) will reduce the annual premiums new borrowers will pay by half of a percent. This action is projected to save more than two million FHA homeowners an average of $900 annually and spur 250,000 new homebuyers to purchase their first home over the next three years.

Thurday’s action also reflects the improved economic health of FHA’s Mutual Mortgage Insurance Fund (MMIF). FHA’s recent annual report to Congress demonstrates the economic condition of the agency’s single-family insurance fund continues to improve, adding $21 billion in value over the past two years.

“This action will make homeownership more affordable for over two million Americans in the next three years,” said Castro. “Since 2009, the Obama Administration has taken bold steps to reduce risks in the mortgage market and to protect consumers. These efforts have made it possible to take this prudent measure while also ensuring FHA remains on a positive financial trajectory. By bringing our premiums down, we’re helping folks lift themselves up so they can open new doors of opportunity and strengthen their financial futures.”

FHA does not make mortgages, but insures lenders who do make then against losses from loan defaults. Consumers pay an ongoing fee to cover this, in addition to a one-time fee when the mortgage loan is closed. In the wake of the nation’s housing crisis, FHA increased its premium prices to stabilize the health of its MMI Fund. In addition, the Obama Administration took steps to safeguard consumers in the mortgage market to ensure responsible borrowers continued to have access to mortgage capital as many private lending sources tightened their lending standards.

Thurday’s announcement lowers that ongoing fee from 1.35 percent to 0.85 percent. This is still higher than the pre-Great Recession fee of 0.55 percent. The announcement left unchanged the upfront fee, and the requirement that borrowers pay the ongoing fee for the life of their loan. The reduction will significantly expand access to mortgage credit for these families and is expected to lower the cost of housing for the approximately 800,000 households who use FHA annually.

FHA’s new annual premium prices are expected to take effect towards the end of the month. FHA will publish a mortgagee letter detailing its new pricing structure shortly.


Reactions from industry leaders

The Consumer Federation of America applauded today’s announcement by President Barack H. Obama to reduce FHA insurance premiums by one-half of one percent.

“FHA historically has served lower wealth consumers,” said Barry Zigas, CFA’s Director of Housing Policy. “Today’s announced roll-back of insurance premiums to lower but still financially sound levels will be welcome news to hundreds of thousands of consumers for whom the price of responsible homeownership has been too high.”

Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Del., today issued the following statement on the reduction in mortgage insurance premiums:

“NAHB commends the President for taking action to reduce FHA’s annual mortgage insurance premiums by 50 basis points to 0.85 percent. Lower premiums will make home loans more affordable for qualified borrowers, particularly first-time buyers, and help to alleviate tight credit conditions in the mortgage market. This prudent course reflects a recent actuarial report that FHA is back in black and strengthening its financial health. The new premium structure will allow FHA to continue building its reserves.”

— Jack Gillis of the Consumer Federation of America and Paul Lopez of the National Association of Home Builders contributed to this report


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Dated: January 13th 2015
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