The Federal Housing Administration is reducing its annual mortgage
insurance premiums by 0.5 percentage points in a move "to expand
responsible lending to creditworthy borrowers," the White House said in a
statement Wednesday afternoon.
FHA also said it would take added steps over the next few months to
"cut red tape and clarify lending standards" in reducing mortgage costs
for hundreds of thousands of creditworthy borrowers, according to the
White House.
The FHA's move comes after several calls
from industry trade groups, associations, and members of Congress
urging the agency to lower its insurance premiums, which were
increasingly blamed for sidelining thousands of would-be buyers.
FHA-backed loans allow buyers to put down as little as 3.5 percent of
the purchase price, and they are a major financing resource for
first-time buyers.
FHA's mortgage insurance premiums will be reduced from 1.35 percent
to 0.85 percent. The reduction in premiums on mortgages could save an
average borrower $1,000 a year on a $200,000 loan, says Mark Zandi,
chief economist at Moody's Analytics.
"We are optimistic that more affordable FHA loans will have a
positive impact on first-time buyers who have been entering the market
at a lower-than-normal rate," National Association of REALTORS®
President Chris Polychron said in a statement. "NAR is a strong
supporter of the FHA and its vital role in the mortgage marketplace for
home buyers. We will continue our work with the administration to help
make the dream of home ownership a reality for millions more Americans."
In 2013, the FHA required a $1.7 billion bailout from the government
after suffering losses from a high number of loan defaults in the
aftermath of the financial crisis. Since 2008, FHA has increased its
annual premiums for FHA borrowers five times. The National Association
of REALTORS® has estimated that nearly 400,000 creditworthy borrowers
were priced out of the housing market in 2013
because of the higher costs in FHA insurance premiums. But in recent
months, FHA has turned a profit, which has renewed calls from other
groups to lower their insurance premiums to help open the credit box to
more qualified borrowers.
"This action will make home ownership more affordable for over two
million Americans in the next three years," says Julian
Castro, secretary of the Department of Housing and Urban Development,
which oversees FHA. "By bringing our premiums down, we're helping folks
lift themselves up so they can open new doors of opportunity."
President Barack Obama is expected to announce more about FHA's new
policy on Thursday in a speech in Phoenix. The housing policy is
expected to go into effect by the end of the month.
Source: “White House Says FHA to Cut Mortgage Insurance Premiums,” Reuters (Jan. 7, 2015) and “Plan Trims Cost of Some Mortgages,” The Wall Street Journal (Jan. 7, 2015)
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