On Monday, the U.S. Department of Housing and Urban Development announced the Federal Housing Administration will reduce the annual premiums most borrowers will pay for mortgages by a quarter of a percent.
The Federal Housing Administration’s (FHA’s) reduced premium rates are projected to save new, FHA-insured homeowners an average of $500 this year. The change will apply to most new mortgages with a closing/disbursement date on or after January 27, 2017.
According to Julian Castro, Secretary, U.S. Department of Housing and Urban Development (HUD), Monday’s action reflected four straight years of improved economic health of the FHA’s Mutual Mortgage Insurance Fund (MMIF)—the fund has gained $44 billion in value since 2012.
For example, just last year an independent analysis found the fund’s capital ratio grew by $3.8 billion and now stands at 2.32 percent of all insurance in force—the second consecutive year since 2008 that FHA’s reserve ratio exceeded the statutorily required two percent threshold.
On Monday, Castro shared his belief that the change comes at the right time in light of the higher cost of credit resulting from increased mortgage interest rates.
“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,” Castro said in a press release that announced the change. “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.”
Beginning in 2009, the Obama Administration took bold steps to reduce risks in the mortgage market and to protect consumers. As a result, the FHA increased its premium prices numerous times to help stabilize the health of the MMI Fund. Since 2010, FHA has raised annual premiums 150 percent— this action helped restore capital reserves but significantly increased the cost of credit to qualified borrowers.
Monday’s action will bring the annual premium closer to its pre-housing-crisis level. It is also expected to significantly expand access to mortgage credit for families, in addition to lowering the cost of housing for approximately one million households expected to purchase a home or refinance their mortgages using FHA-insured financing in the coming year.