FHA Raises Insurance Premiums

By: Carrie Bay 02/28/2012

The Federal Housing Administration (FHA) has seen its capital reserves quickly dissipate over the past few years amid a growing number of mortgage defaults and payouts on insurance claims. In an effort to bolster its capital cushion, the federal agency has announced a new premium structure for FHA-insured single-family mortgage loans.

FHA will increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500, effective for new loans insured by FHA beginning in April. The agency is increasing the annual MIP by 0.35 percent for loans above that amount, effective in June. Upfront premiums (UFMIP) will also increase by 0.75 percent, beginning April 1. Existing borrowers who are already part of an FHA insurance program will not be impacted by the pricing changes.

Acting FHA Commissioner Carol Galante says the agency’s premium increases will help to encourage the return of

private capital to the housing market, as well as protect FHA’s capital reserves.

FHA’s Mutual Mortgage Insurance Fund slipped below the congressionally mandated threshold in 2009 for the first time in the agency’s history (going back to 1934), and it has fallen farther and farther ever since. The FHA insures lenders against defaults on home mortgages, and this fund pays for any losses the agency may have to cover.

“These modest [premium] increases are one of several measures we are taking towards meeting the congressionally mandated two percent reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers,” Galante said.

FHA estimates that the increase to the upfront premium will cost new borrowers an average of approximately $5 more per month.

HUD Secretary Shaun Donovan stood before a Senate subcommittee on Tuesday and presented testimony on deficiencies in the foreclosure process and the recently announced settlement between state and federal officials and the nation’s largest mortgage servicers.

Inevitably, questioning from lawmakers turned to FHA’s financial state and Donovan was asked directly if the federal mortgage insurer would be the next big bailout shouldered by taxpayers.

Donovan assured the senators that the agency was taking steps to avert such action. He said the new premium changes for FHA insured mortgages would allow the agency to increase revenues and contribute more than $1 billion to the depleted Mutual Mortgage Insurance Fund through fiscal year 2013.

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