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FHA cuts mortgage insurance premiums again

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FHA cuts mortgage insurance premiums again

When the Federal Housing Administration announced late last year that its flagship fund, the Mutual Mortgage Insurance Fund, grew for the fourth straight year, it led to many questions about whether the FHA should cut its mortgage insurance premiums again.

While, Ed Golding, the Department of Housing and Urban Development’s principal deputy assistant secretary for housing, said at the time that the FHA is not considering cutting its mortgage insurance premiums, that’s not the case anymore.

Golding said that the results of the FHA’s portfolio “clearly show that there is room to return pricing to a level that reflects the risk in the program,” but said that agency considers other items when determining whether to cut premiums, including the outlook for the economy, the budget implications of a cut, and determining when is the right timing for a cut.

While the timing apparently wasn’t right in November, the timing is right now, as the FHA announced Monday that it is cutting its annual mortgage insurance premiums for the second time in two years.

In 2015, the MMI Fund reached its Congressionally mandated threshold of 2% ahead of schedule, a feat that surprised many observers considering that it came after the Obama administration announced a 50 basis point cut in annual mortgage insurance premium prices in January 2015.

The MMI Funds’ subsequent performance drove speculation that the FHA may cut premiums again in 2016 or remove the life-of-the-loan policy. That speculation grew when the FHA announced in November that its flagship fund grew in fiscal 2016, further surpassing its Congressionally mandated threshold of 2% and reaching 2.32%.

And Monday, those who speculated the FHA would cut its premiums again were proven right.

According to the FHA, it will cut the annual mortgage insurance premiums most borrowers will pay by one-quarter of a percentage point, or 25 basis points.

The FHA said that it projects that its new premium rates will save new FHA-insured homeowners an average of $500 in 2017 alone.

According to the FHA, the cut applies to new mortgages with a closing or disbursement date on or after Jan. 27, 2017.

In a statement, HUD Secretary Julián Castro said that the cut aligns the FHA’s policies with “today’s risk environment” and “comes at the right time” for borrowers who now have to deal with a rising mortgage interest rate environment.

“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” Castro said. “This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.”

As he said in November, Golding said that the FHA considered a number of factors when deciding to cut its premiums.

“We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers,” Golding said.

“Homeownership is the way most middle class Americans build wealth and achieve financial security for themselves and their families,” Golding added. “This conservative reduction in our premium rates is an appropriate measure to support them on their path to the American dream.”

The FHA said that the premium cut “will significantly expand” access to mortgage credit and lower the cost of housing for the approximately 1 million households who are expected to purchase a home or refinance their mortgages using FHA-insured financing in 2017.

For a full breakdown of the premium cuts, click here for the details from HUD.