Housing Made More Affordable with FHA's Reduction in Mortgage Insurance
Annual mortgage insurance premiums for Federal Housing Administration (FHA)-backed mortgages are lowering toward their pre-bust level, with FHA announcing on Monday another reduction, this time to 0.60 percent for most borrowers. The one-quarter point reduction is expected to save FHA-insured borrowers with a closing date on or after Jan. 27, 2017 an average $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," said U.S. Department of Housing and Urban Development (HUD) Secretary Julián Castro in a statement. "This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of home-ownership for credit-qualified borrowers."
FHA raised premiums several times since the recession to keep its Mutual Mortgage Insurance Fund (MMIF) afloat, at a considerable cost to borrowers, and, according to the National Association of REALTORS® (NAR), to the detriment of housing; research by the organization shows that the increases priced out approximately 1.5 million renters. The Fund's capital reserve ratio is now at 2.32 percent, above the 2 percent requirement.
NAR applauded the reduction, stating it "breathes new life" into FHA-insured mortgages.
"FHA mortgage products exist to serve an important mission: providing home-ownership opportunities to creditworthy borrowers who are overlooked by conventional lenders," says NAR President William E. Brown. "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.
"This is a question of simple math," Brown continues. "Every time we cut the cost of mortgage insurance, it means more borrowers meet the debt-to-income ratio required to purchase a home. It follows that dropping mortgage insurance premiums will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA. 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."
HUD expects the new reduction to help 1 million households. FHA last reduced premiums in January 2015, which saved 2 million FHA-insured borrowers an average $900 annually.
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