FHA’s Higher Fees to Bolster Mortgage Insurance Fund by $1 Billion

The Federal Housing Administration will increase its annual mortgage insurance premium by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount.
Upfront premiums will also increase by 0.75 percent, which the FHA estimates will cost new borrowers an average of approximately $5 more per month.
Altogether, these premium increases will contribute more than $1 billion to the agency’s vital insurance fund, based on current volume projections through fiscal year 2013.
These premium hikes will affect new loans insured by FHA beginning in April and June of 2012.  Details will soon be published in a Mortgagee Letter to FHA-approved lenders.
Mortgages backed by the FHA allow homeowners to purchase a home with less of a down payment and less stringent credit requirements than traditional mortgages.
Since the financial crisis, he agency’s business has soared as private mortgage lenders have further tightened credit. That has put a strain on the FHA’s reserves.
FHA Commissioner Carol Galante said the increases are necessary to bolster FHA’s capital reserves.
Over the past two years, FHA reserves to cover losses have plummeted to about 0.5 percent of insured loans the FHA has in force — well under the 2 percent coverage ratio required by Congress.
“After careful analysis of the market and the health of the (Mutual Mortgage Insurance) 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,” said Galante.  “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 Temporary Payroll Tax Cut Continuation Act of 2011 requires the FHA to increase the annual mortgage insurance premium it collects by 0.10 percent.  This change is effective for case numbers assigned on or after April 1, 2012.
FHA is also exercising its statutory authority to add an additional 0.25 percent to mortgages exceeding $625,500.  This change is effective for mortgages assigned on or after June 1, 2012.

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