FHA Raises Premiums to Protect Mortgage Insurance Fund

The Federal Housing Administration will implement mortgage insurance premium increases to help bolster the agency’s capital reserves, acting commissioner Carol Galante said today. The changes will not impact Home Equity Conversion Mortgages (HECMs), those already in a FHA-insured mortgage, or special loan programs to be announced in a forthcoming mortgagee letter.

“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 two percent reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers.”

The increases announced today are for forward loans only, effective April 1, FHA confirmed, and were announced in addition to a required increase in annual premiums by 0.10% under the Temporary Payroll Tax Cut Continuation Act of 2011. HUD announced an additional 0.25% for mortgages exceeding $625,500.

The upfront mortgage insurance premium will be increased from 1% to 1.75%, according to the HUD release, and will cost borrowers an estimated $5 per month on average.

“Taken together, these premium changes will enable FHA to increase revenues at a time that is critical to the ongoing stability of its Mutual Mortgage Insurance (MMI) Fund, contributing more than $1 billion to the Fund, based on current volume projections through Fiscal Year 2013,” FHA said.

Written by Elizabeth Ecker

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