Federal Housing Administration (FHA
) to reduce annual mortgage insurance premiums from 1.35% to 0.85%.
"Today, the President announced a major new step that his administration is taking to make mortgages more affordable and accessible for creditworthy families," according to a statement from The White House
. "For the typical first-time homebuyer, this reduction will translate into a $900 reduction in their annual mortgage payment."
Existing homeowners who refinance into an FHA
mortgage will see similar reductions to their mortgage payments as well. In total, the action is expected to help millions of families save billions of dollars in mortgage payments in the coming years, helping to support the housing market recovery, according to statement.
“Any reduction in the mortgage insurance premium is welcomed news; however, 0.85% is still too high," said Marc Savitt, president of the National Association of Independent Housing Professionals and
The Mortgage Center, "HUD also needs to allow borrowers to drop the monthly insurance premium once the loan reaches 80% LTV. Lowering the costs associated with FHA
financing, will allow more borrowers to qualify and afford the program.”
The White House noted the new premium level is consistent with the FHA
’s commitment to continue strengthening its financial health through growing reserves. However, the action will have to be approved by Congress.
's capital-reserve ratio, which it is supposed to keep above 2%, grew to 0.41% in 2014, according to an independent annual audit of the U.S. government’s mortgage insurance fund
released in November. The agency is required to keep enough cash to cover all projected losses in its $1.1 trillion portfolio, and the report estimated that the FHA
’s Mutual Mortgage Insurance (MMI) Fund won’t return to the congressionally mandated 2% threshold until 2016.
The audit also showed the FHA
posted its first positive balance since 2011, and the MMI Fund for single-family programs gained almost $6 billion and is estimated to be around $4.8 billion for the 2014 fiscal year. That’s compared to the negative $1.1 billion reported last fiscal year.
At the time of the audit's release, David Stevens, president and CEO of the Mortgage Bankers Association, said, "Maintaining this trend will require FHA
to continue its ongoing work to improve transparency and certainty around its loan quality assessment methodology, as well as to re-examine mortgage insurance premiums, both the amount and the structure.
Stevens added that premiums are currently at an all-time high, and that the FHA
needs to find the right balance so it can “meet its mission and further grow its reserves by sustainably increasing volumes without being adversely selected should only the highest risk borrowers be willing to pay the high premiums.”
In the coming months the Obama Administration plans to take additional steps "to cut red tape and clarify lending standards to build on the measures announced today, and the administration will continue to urge bipartisan progress in Congress to pass comprehensive housing finance reform legislation that will secure a stable and resilient housing finance system."
Click here to read the full statement.
The White House has confirmed that the Obama Administration is directing the