FHA to Raise Mortgage Insurance Premiums in April
In an effort to repair the health of its emergency fund, the Federal Housing Administration will raise mortgage insurance premiums this April. The FHA upfront mortgage insurance premium will jump from 1% to 1.75% of the base home loan amount. This will apply regardless of the term of the loan or the loan-to-value ratio beginning in April.
The annual mortgage insurance premium will increase by 10 basis points for loans under the $625,500 limit beginning April 1 and by 35 basis points for home loans over $625,500 starting in June, the FHA reported Monday. Authority for these raises fall under the payroll tax cut extension agreed to last fall.
The Federal Housing Administration said the changes will boost the Mutual Mortgage Insurance Fund by $1 billion.
The Up Front Mortgage Insurance Premium can still be financed into the mortgage. The increase to the upfront premium will cost new borrowers approximately $5 more per month.
Reverse mortgages and borrowers who are in special loan programs would be exempt from the changes, according to the FHA.
The MMI (Mutual Mortgage Insurance) fund slipped below the Congressionally mandated 2% threshold in 2008, and it slipped to 0.2% last year. According to an analysis of President Obama's budget, the fund could have declined further in 2013 and possibly needed a bailout from the Treasury Department.
"After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market," FHA Commissioner Carol Galante said last week. "These modest increases are one of several measures we are taking towards meeting the Congressionally mandated 2% reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers."
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