February 15, 2011 (Jeff Alan)
The Department of Housing and Urban Development (HUD) has announced that it will be raising premiums on mortgage loans insured by the Federal Housing Administration (FHA). FHA Commissioner David H. Stevens stated that the new premium structure of FHA insured mortgage loans was part of an ongoing effort to strengthen the FHAs capital reserves.

The cost of the annual mortgage insurance premium (MIP) will be increased by a quarter of a percentage point (0.25) on all 15 and 30 year fixed rate mortgages beginning on April 18, 2011.

“After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” said Stevens. “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”

The proposed change was announced last week as part of the Obama Administration’s report to Congress, which outlined the Administration’s plan to reform the nation’s housing finance system. This premium change was also detailed in President Obama’s fiscal year 2012 budget. The Administration’s housing finance plan also recommended that Congress allow the present increase in FHA conforming loan limits to expire as scheduled on October 1, 2011.

On average, new FHA borrowers will pay approximately $30 more per month. This marginal increase is affordable for almost all homebuyers who would qualify for a new loan.

The increased premium allows the FHA to increase revenues and add stability to its Mutual Mortgage Insurance (MMI) Fund. The newer premium is expected to add approximately $3 billion in revenue annually to the Fund. The Fund currently has capital reserves of approximately $3.6 billion.

Existing and HECM loans insured by FHA are not impacted by the pricing change as the policy affects loans only made after April 18th, 2011.

The full press release can be viewed here.

Tags: HUD, FHA, mortgage loans, mortgage insurance premium, housing finance system, conforming loan limits, borrowers