The Department of Housing and Urban Development announced on Monday that they plan to reduce the Mortgage Insurance Premium for FHA mortgage loans. Since 2012, the Federal Housing Administration’s(FHA) Mutual Mortgage Insurance(MMI) Fund has gained $44 billion, and is now 32 basis points above the 2 percent threshold level required by Congress. This is ~$13 billion more than projected for Fiscal Year 2017 in an Actuarial Review of the MMI Fund for Fiscal Year 2012.
The FHA Pays It Forward
“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,” … “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.” – Julián Castro, HUD Secretary
According to the FHA, the reduction will return the Mortgage Insurance Premium nearly to levels seen before the housing bubble crisis. The FHA also predicts that ~1 million borrowers will buy or refinance with an FHA loan over the next year, most of whom will see reduced costs.
“We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers,” … “Homeownership is the way most middle class Americans build wealth and achieve financial security for themselves and their families. This conservative reduction in our premium rates is an appropriate measure to support them on their path to the American dream.”
– Ed Golding, Principal Deputy Assistant Secretary for HUD’s Office of Housing.
The Takeaway
According to the FHA, annual mortgage insurance premiums will be lowered 25 basis points*, or one quarter of one percent, will come into effect on January 27th of this year. The FHA estimates that new rates could save, on average, $500 in 2017 alone for most FHA borrowers.
*For loans less than or equal to $625,500 with a maturity greater than 15 years. Please see the full report from HUD for more details of different loan scenarios and their actual MIP’s.
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