January 16th, 2017 5:06 AM by Jackie A. Graves, President
Federal agency says premium cut
will save borrowers $500 a year on average
Low- to moderate-income homebuyers will
get a boost in 2017, with the Federal Housing Administration (FHA) set to cut
mortgage insurance premiums later this month.
move “will mean a whole lot more responsible borrowers are suddenly eligible to
purchase a home through FHA,” said National Association
of Realtors President
William E. Brown in a statement.
will reduce the annual mortgage insurance premium most FHA borrowers pay by a
quarter of a percentage point starting January 27. Annual premiums will drop to
0.6 percent from 0.85 percent, according to NAR.
time we cut the cost of mortgage insurance it means more borrowers meet the
debt-to-income ratio required to purchase a home,” said Brown, explaining why
the move should lead more aspiring homebuyers to pull the trigger.
rate cut means new borrowers who take out mortgages insured by the FHA will
save an average of $500 this year, according to HUD.
action “comes at the right time for consumers who are facing higher credit
costs as mortgage interest rates are increasing,” according to Julián Castro,
the U.S. Housing and
Urban Development (HUD) Secretary,
which oversees the FHA.
Why this is good news
FHA makes it possible for banks to lend to borrowers who might not qualify
for conventional mortgages,
serving as a wellspring of credit for those buyers.
borrowers pay both an insurance premium to the FHA and higher
interest rates in return for a mortgage that requires as little as a
3.5 percent down payment.
mortgage products exist to serve an important mission: providing homeownership
opportunities to creditworthy borrowers who are overlooked by conventional
lenders,” said NAR President William E. Brown in a statement.
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.”
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 in a statement.
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
to Guy Cecala, CEO and publisher of Inside Mortgage Finance, FHA’s share of the
home purchase market in first three quarters of 2016 was 16.6 percent.
was way down from the 33.8 percent market share seen as recently as 2010, but
up from the 13.5 percent share seen right before FHA first lowered its annual
MIP in early 2015,” Cecala told Inman via email.
Can FHA afford to do it?
of the FHA’s Mutual Mortgage Insurance Fund (MKIF) has improved
for four straight years, gaining $44 billion in value since 2012, according to
HUD. The fund pays FHA lenders when borrowers default on FHA-insured mortgages.
independent analysis found that the fund’s capital ratio now stands at
2.32 percent of all insurance in force — the second consecutive year since 2008
that the FHA’s reserve ratio exceeded the mandatory 2.0 percent threshold, HUD
started insuring a much larger share of purchase mortgages to help fill a
credit void after the mortgage meltdown.
largely stemming from loans the FHA made from 2007 to
2009 forced the agency to take a bailout of $1.7 billion in 2013 to
ensure it had enough reserves to cover anticipated losses on the loans it
carefully weighed the risks associated with lower premiums with our historic
mission to provide safe and sustainable mortgage financing to responsible
homebuyers,” said Ed Golding, principal deputy assistant secretary for HUD’s
office of housing, in a statement.
ByTeke Wiggin - To view the
original article click here