Housing advocates on Monday applauded the Federal Housing Administration’s (FHA) decision to reduce annual mortgage insurance premiums with home loan rates on the rise.
Housing and Urban Development Secretary Julián Castro said the FHA will reduce the premiums for most borrowers by a quarter of a percent, dropping them to 0.60 from 0.85 for most new mortgages with a closing date on or after Jan. 27.
FHA’s reduced rates are projected to save new FHA-insured homeowners an average of $500 this year.
“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” Castro said.
{mosads}“This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers,” he said.
The National Association of Realtors has been advocating for a reduction in the premiums, arguing that lower costs for borrowers should breathe new life into the program.
“FHA mortgage products exist to serve an important mission: providing homeownership opportunities to creditworthy borrowers who are overlooked by conventional lenders,” said NAR President William Brown, a real estate agent from Alamo, Calif.
“The high cost of mortgage insurance has unfortunately put those opportunities out of reach for many young, first-time and lower-income borrowers. Now, we have a real opportunity to get back on track,” Brown said.
The action reflects the fourth straight year of improved economic health of FHA’s Mutual Mortgage Insurance Fund (MMIF), which has gained $44 billion in value since 2012.
Ed Brady, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Bloomington, Ill., said that “with mortgage rates rising in recent weeks, lower premiums will make home loans more affordable, particularly for creditworthy young families and first-time buyers.”
“The new premium structure will also help to ease stubbornly tight credit conditions in the mortgage market, and represents sound policy given a recent actuarial report that shows that the agency continues to strengthen its financial reserves,” Brady said.
Last year, an independent actuarial analysis found that the MMI Fund’s capital ratio grew by $3.8 billion and stands at 2.32 percent of all insurance in force — the second straight year since 2008 that FHA’s reserve ratio has exceeded the statutorily required 2 percent threshold.
Ed Golding, principal deputy assistant secretary for HUD’s Office of Housing said, “we’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers.”
Following the nation’s housing crisis, FHA increased premium prices several times to stabilize the MMI Fund.
Since 2010, FHA had raised annual premiums 150 percent that helped restore capital reserves but significantly increased the cost of credit to borrowers.
“This is a question of simple math,” Brown said. “It follows that dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA,” he said.
“That puts more money in the fund to protect taxpayers, and it puts more families in homes so they can live out the American dream.”
David Stevens, head of Mortgage Bankers Association, said the reduction is a good move but more work needs to be done to improve the FHA program.
“The reduction in the premium is a result of our industry’s and FHA’s shared commitment to quality underwriting, and consumers will benefit as result,” Stevens said.
“Reducing the cost of FHA loans benefits borrowers, but other changes to reduce uncertainty for lenders would be required to truly invigorate the FHA program.”