FHA rate reduction will lower mortgage insurance premiums
Lower rate will reduce FHA mortgage premiums
Obama to announce measure to boost homebuying.
The Federal Housing Administration will reduce the mortgage insurance premium rate charged on loans backed by the agency in an effort to turn more renters into homebuyers, the White House confirmed Wednesday.
The 0.5 percentage point decrease in the annual insurance premium rate, to 0.85 percent from 1.35 percent, is expected to reduce a borrower's annual mortgage payment by about $900. President Barack Obama is expected to talk about the change during a speech Thursday in Phoenix.
FHA-backed mortgages have been a path to homeownership because they require only a 3.5 percent down payment and have been popular with lower income, minority and first-time buyers. Minority buyers account for almost one-third of FHA-insured mortgages for first-time homebuyers, according to the agency.
But in an effort to deal with the agency's sagging finances, the FHA increased costs tied to those loans several times during the past few years, making the mortgage product less desirable.
An announcement late last year that Fannie Mae and Freddie Mac also would accept mortgages with 3 percent down payments had the potential of making the FHA even less relevant.
The FHA's premium hikes were necessary because the home loan insurance fund was designed to operate independent of taxpayer subsidies. As a result of the housing crisis and borrower defaults, the fund was operating at a loss as it paid out claims to lenders. In 2012, its net worth was negative $16.3 billion.
But the FHA's annual report to Congress showed that its mutual mortgage insurance fund on Sept. 30 had an economic net worth of $4.8 billion, a $6 billion improvement from a year earlier.
The National Association of Realtors, along with 18 senators, last year campaigned for the FHA to decrease premiums. The Realtors' group noted that increases in the premium from its 2010 level of 0.55 percent may have priced out 125,000 to 375,000 first-time and repeat buyers from the market.
The association also called for the FHA to no longer require insurance for the life of the loan. It is uncertain whether Obama will address that.
Analysts at the Urban Institute, in a blog post this week, called on the FHA to "stop overcharging today's borrowers for yesterday's mistakes."
As of September, the nation's homeownership rate had sunk to 64.4 percent, a 19-year low. That compares with a rate of about 69 percent a decade ago.
"Many creditworthy families who can afford, and want to purchase, a home are shut out of homeownership opportunities due to today's tight lending environment," the White House said in a statement confirming the premium rate decrease.
The statement also noted that other changes will be announced to "cut red tape and clarify lending standards."
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