PMC Mortgage Lender's Blog

As part of ongoing efforts to strengthen the Federal Housing Administration’s (FHA) capital reserves, FHA Commissioner David H. Stevens this week announced a new premium structure for FHA-insured mortgage loans.

The annual mortgage insurance premium (MIP) was increased by a quarter of a percentage point (.25) on all 30- and 15-year loans. The upfront MIP will remain unchanged at 1.0 percent. These changes will affect new loans insured by FHA on or after April 18, 2011.

“After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” stated Stevens.

“This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”

The proposed change was announced last week as part of the Obama Administration’s report to Congress, which outlined the Administration’s plan to reform the nation’s housing finance system.

This premium change enables FHA to increase revenues at a time that is critical to the ongoing stability of its Mutual Mortgage Insurance (MMI) fund. At the end of Fiscal Year 2010 the capital reserves were approximately $3.6 billion. Increasing the premiums will contribute nearly $3 billion annually to the Fund, based upon current volume projections.

It is vital that HUD take action to ensure that FHA will continue to serve its dual mission of providing affordable homeownership options to underserved American families and first-time homebuyers while helping to stabilize the housing market.

On average, new FHA borrowers will pay approximately $30 more per month. Existing and HECM loans insured by FHA are not affected by the pricing change.

President Obama’s FY 2012 budget projects the FHA will insure $218 billion in mortgage borrowing in 2012. These guarantees will support new home purchases and re-financed mortgages that significantly reduce borrower payments.