FHA Lowers Cost of Mortgage Insurance Premiums, Possibly.

January 8, 2015
2 min. read time

President Barack Obama announced on Wednesday that the Federal Housing Administration (FHA) annual insurance premiums will lower to 0.85 from 1.35, according to an article published by CNBC. This move is said to expand responsible credit borrowing to qualified lenders, according to the article, and is an effort to bring more first-time home buyers into the current market.

Mortgage issuers stocks also fell on Wednesday, according to the report, while home builder’s stocks across the nation rose. Julian Castro, Secretary of the U.S. Department of Housing and Home Development, believes that this move will increase the affordability of American homes over the next few years. He said that taking the premiums down for American citizens will improve opportunities and strengthen financial outcomes. He sees this as a step to reduce risks in the mortgage department and help protect consumers.

According to the article, the reduction in premiums could mean a savings of around $80 a month for a first time applicant to the FHA. In addition, Freddie Mac and Fannie Mae (two federally sponsored second-party mortgagers) announced recently a new 3 percent down payment option requiring private mortgage insurance. This, of course, is for qualified lenders, meaning those in very good credit standing. However, it does compete directly with the FHA, which offers down payment options at a 3.5 percent minimum.

The FHA has been working on building its capital reserves back up, according to the article, and because it is not in the clear yet, some people believe that the decision to make cuts could receive some criticism. To be out of the black, its capital reserves must meet a 2 percent minimum.

“Lowering the premium will bring volume back to the FHA,” said Diana Olick, real estate reporter for CNBC. “But it will also bring back risk.”

Among all the risks, the article reports that the White House administration is clearly looking for ways to increase homeownership by making the process and implementation of a mortgage less reckless for buyers. President Obama is expected to address all this and more on Thursday in Phoenix, where he will give a speech on the improvements in the housing market as well as future plans.

Read the full CNBC Article

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