FHA Cuts Insurance Premiums on Mortgages

The Federal Housing Administration (FHA) has great news for homeowners! Borrowers who will be obtaining FHA financing for their home will soon welcome an annual reduction in their premiums by 25 points. As the government issuer of low down-payment home loans, the FDA says it will save Nations Lending’s FHA borrowers an average of $500 each this year.

Money is money and $500 certainly will help the average FHA borrower. The US Department of Housing and Urban Development (HUD) , who oversees the FHA, pointed out that the reduction in insurance premium was due to the improved financial condition of the FHA’s insurance fund. This fund was a major player in the housing bailout, offering borrowers the only low down-payment option available. Nations Lending’s borrowers can put as little as 3.5 percent down on a home with a mortgage backed by the FHA. HUD officials said the reduction is likely to lower the cost of housing for approximately 1 million households who are expected to purchase a home or refinance their mortgages using FHA-insured financing in the coming year.

In the last year, there has been competition from Fannie Mae and Freddie Mac which rolled out low down payment programs. Although their volumes have not been high, the programs still represent an alternative – which are also at this point financed by taxpayers. In 2008, at the height of the financial crisis, nearly one-quarter of new loans were backed by the FHA. That is now down to about 1 in 6. The housing bailout, however, put the FHA in the red for several years. Thanks to strict underwriting and numerous premium hikes totaling 150 basis points, that is no longer the case.

The FHA tells us that its insurance fund has gained $44 billion in value since 2012 and its capital ratio has been above the required 2 percent level for two years. The “why” may be lost on Nations Lending’s borrowers, overshadowed by the “how much will it help me?” discussion. Which is fine, especially when it helps borrowers financing a new home through Nations Lending.