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President Announces Reduction in FHA Single Family Annual Premiums

Published on January 9, 2015 by Greg Zagorski
President Announces Reduction in FHA Single Family Annual Premiums

President Obama announced in a speech yesterday in Phoenix, Arizona that the Federal Housing Administration (FHA) will be reducing the annual premiums it charges for single-family loans by 50 basis points, from 1.35 percent of the loan amount to .85 percent of the loan amount. The reduction is expected to go into effective sometime this month. HUD has indicated that FHA will publish a Mortgagee Letter detailing the new pricing structure shortly.

In his speech, the President said that the reduced rates would “help more responsible borrowers stake their claim on the middle class and buy their first new home.” Obama estimated that the reduced premiums would save the average FHA borrower around $900 a year. A fact sheet sent out by the White House estimates that nearly 800,000 borrowers will benefit from the lower premium annually, and that the lower rates will allow an additional 250,000 borrowers to become homeowners over the next three years.

FHA charged all borrowers a .55 percent annual premium as of 2011, but has increased annual premiums several times since then when its finances deteriorated due to losses experienced during the housing downturn. HUD’s latest actuarial report shows that FHA’s mutual mortgage insurance fund (MMIF), which funds its single-family and reverse mortgage programs, has returned to a positive balance.

Prior to the President’s announcement, NCSHA and several other groups, including the National Association of Realtors, the National Association of Home Builders, and the Mortgage Bankers Association, sent a letter to HUD Secretary Castro urging HUD to reduce the cost of its single-family mortgage insurance premiums to expand access to safer and more affordable mortgages to more creditworthy households.

Some congressional Republicans have expressed opposition to the reduced premiums. In a statement released Wednesday, Jeb Hensarling (R-TX), the Chair of the House Financial Services Committee, called the reductions “a grave mistake.” Hensarling announced that his committee will question Castro about the health of the MMIF fund at a hearing in February.

During the speech, the President also called on Congress to wind down Fannie Mae and Freddie Mac. While his speech did not offer any details about how a future housing finance system should be structured, the fact sheet outlines the Administration’s support for housing finance reform that will require more private capital in the system; end the failed Fannie/Freddie duopoly business model in order to improve system stability and better protect taxpayers; ensure broad access for all creditworthy families to sustainable products like the 30-year fixed rate mortgage in good times and bad; and help ensure sustainable rental options are widely available.

Obama concluded his speech by telling the story of a woman in Arizona, Lorraine Cona, who was able to remain in her home despite being laid off because of assistance and counseling she received through the state-HFA administered Hardest Hit Fund.