FHA Raises Mortgage Insurance Premiums to Bolster Reserves

FHA to Hike Mortgage Insurance Premiums to Bolster Reserves  The Federal Housing Administration said it is raising mortgage-insurance premiums and increasing the minimum down payment on jumbo loans because it needs to protect its insurance fund and draw more private capital into the housing market.
The FHA will increase its annual mortgage insurance premium (MIP) for most new mortgages by 10 basis points, or by 0.10 percent.
Premiums on jumbo mortgages ($625,500 or larger) will jump by 5 basis points or 0.05 percent, to the maximum authorized annual mortgage-insurance premium.  These premium increases exclude “certain streamline refinance transactions,” the FHA said today.
The agency will also require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan.  This will allow the FHA to retain significant revenue that is currently being forfeited prematurely.
Starting in 2001, the FHA had cancelled required MIP on loans when the outstanding principal balance reached 78 percent of the original principal balance. However,  FHA remains responsible for insuring 100 percent of the outstanding loan balance throughout the entire life of the loan.
FHA Commissioner Carol Galante announced a series of changes that will allow the agency to better manage risk and further strengthen the health of the Mutual Mortgage Insurance Fund (MMI).
“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs” said Galante.  “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”
FHA’s Office of Risk Management and Regulatory Affairs estimates that the MMI Fund has “foregone billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy.”
The FHA is a government agency that not only backs U.S. mortgages but also injects liquidity into the housing market by protecting lenders. The FHA currently backs 15 percent of U.S. mortgages, some with down payments as low as 3.5 percent.
However, an independent audit released in November showed  that the FHA would not have the cash reserves to pay all of its obligations, with the total shortfall amounting to about $16.3 billion.

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