Government Increasing the FHA Loan Premiums
The US House passed a bill yesterday that would give HUD the authority to increase the FHA mortgage insurance premiums over a period of time. Keeping the FHA loan premiums low would help increase homeownership and raising the premium would likely decrease new home buyers. This bill was created in an effort to help the Federal Housing Administration shore up its finances is set for a vote this week in the U.S. House of Representatives. FHA loan defaults have eroded the reserves for the FHA loan programs, which drives the probable bailout for taxpayers. The legislation’s goal is to help replenish FHA reserves without harming the agency’s mission of backing low down payment loans for low- and moderate-income borrowers. The bill would nearly triple the cap on the annual premiums the FHA charges borrowers to 1.50% from 0.55%. Many government lenders are concerned about the effect high premiums will have on the FHA financing market.
This bill should make it easier for the FHA to shield itself from losses on loans that were underwritten fraudulently or violated FHA standards. FHA Commissioner David Stevens said the legislation will make “absolutely certain” the agency has the power to protect itself from bad lenders and rebuild its capital-reserve fund. The FHA estimates the proposed changes will generate about $300 million a month in positive receipts, allowing the agency to replenish its reserves at a much faster rate than it otherwise would. This FHA mortgage insurance bill could pose some problems with FHA borrowers who are struggling with affordability on their exiting FHA loan.
In recent months, the FHA has tightened standards for borrowers and expelled more than a thousand lenders from its program. The FHA raised its upfront borrower premiums to 2.25% from 1.75%, but it intends to lower that premium to around 1% once it has the power to increase the annual premium. The FHA plans to raise the annual premium to 0.90% from the current 0.55%, Stevens has testified. The FHA estimates the change will result in a premium increase of $42 a month for the typical new borrower.
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