The Federal Housing Administration will raise mortgage insurance premiums this April in order to repair the health of its emergency fund.
The FHA upfront mortgage insurance premium will increase to 1.75% from 1% of the base home loan amount. This will apply regardless of the term or loan-to-value ratio beginning in April.
The annual mortgage insurance premium will increase by 10 basis points for loans under the $625,500 limit beginning April 1 and by 35 bps for home loans above that amount starting in June, the FHA said Monday. Authority for these raises come under the payroll tax cut extension agreed to last fall.
The FHA said the changes will boost the Mutual Mortgage Insurance Fund by $1 billion.
The UFMIP can still be financed into the mortgage. The increase to the upfront premium will cost new borrowers roughly $5 more per month.
Reverse mortgages and borrowers in special loan programs would be exempt from the changes, according to the FHA.
Last week at the Mortgage Bankers Association servcing conference in Orlando, FHA Commissioner Carol Galante said there would be upcoming insurance premium changes for the streamline refinance program. An FHA spokesman said these changes would be included in a letter to lenders due soon.
The MMI fund slipped below the Congressionally mandated 2% threshold in 2008, and in slipped to 0.2% last year. According to an analysis of President Obama's budget, the fund could have declined further in 2013 and possibly needed a bailout from the Treasury Department. Nearly $1 billion in revenue from settlements with mortgage servicers announced in the last few weeks will also keep the fund from needing assistance, according to FHA.
"After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market," Galante said. "These modest increases are one of several measures we are taking towards meeting the congressionally mandated 2% reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers."