FHA Announces New Annual Premium Reductions

HUD yesterday announced another reduction to annual premiums most FHA borrowers would pay by 25 basis points.

HUD estimated that the premium reductions could save new FHA-insured homeowners an average of $500 this year. The reduction. to 0.60 percent from 0.85 percent, affects most new mortgages with a closing/disbursement date on or after January 27. The announcement appears in Mortgagee Letter 2017-01 (https://portal.hud.gov/hudportal/documents/huddoc?id=17-01ml.pdf).

HUD Secretary Julián Castro noted the reduction comes after four consecutive years of improved economic health of FHA’s Mutual Mortgage Insurance Fund, which gained $44 billion in value since 2012. Last year, an independent actuarial analysis found the MMI Fund capital ratio grew by $3.8 billion and now stands at 2.32 percent of all insurance in force, above the congressionally mandated 2 percent threshold.

“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.”

In a statement, Mortgage Bankers Association President and CEO David Stevens, CMB (a former FHA commissioner), called the reduction a positive step.

“The reduction in the premium is a result of our industry’s and FHA’s shared commitment to quality underwriting, and consumers will benefit as result,” Stevens said. “Reducing the cost of FHA loans benefits borrowers, but other changes to reduce uncertainty for lenders would be required to truly invigorate the FHA program. MBA looks forward to continuing to work with all stakeholders, including the new Administration, to ensure the safety and soundness of the FHA program.”

Ed Golding, Principal Deputy Assistant Secretary for HUD’s Office of Housing, said HUD carefully weighed risks associated with lower premiums with its mission to provide safe and sustainable mortgage financing. “This conservative reduction in our premium rates is an appropriate measure to support them on their path to the American dream,” he said.