FHA to Hike Up-Front and Annual Premiums

ThernFederal Housing Administration (FHA) announced that it isrnincreasing both upfront and annual premiums for its insured single family loans.  An increase of 0.10 percent in the annualrnpremium mandated by the Temporary Payroll Tax CutrnContinuation Act of 2011 will be effective for all loans writtenrnafter April 1.  In addition, FHA isrnexercising its statutory authority to raise other fees for the specific purposernof strengthening FHA’s Mutual Mortgage Insurance Fund (MMI).</p

Thernupfront premium for all loans will also increase by 0.75 percent on April 1. Thernupfront premium will thus increase from 1 percent to 1.75 percent of the basernloan amount regardless of the amortization term or loan-to-value ratio of thernloan.  FHA will continue to permitrnfinancing of this charge into the mortgage. rnFinally, on June 1 an additional increase of 0.25 percent will bernimposed on FHA-insured loans with principal balances over $625,000 bringing therntotal hike in those large loan fees to 0.35 percent.  </p

ActingrnFHA Commissioner Carol Galante said, “After careful analysis of the market andrnthe health of the MMI fund, we have determined that it is appropriate tornincrease mortgage insurance premiums in order to help protect our capitalrnreserves and to continue encouraging the return of private capital to thernhousing market. These modest increases are one of several measures we arerntaking towards meeting the Congressionally mandated two percent reservernthreshold, while allowing FHA to remain a valuable option for low- tornmoderate-income borrowers.”</p

FHArnestimates that the premium changes will, in the aggregate, add more than $1rnbillion to the MIF based on the current volume projections through Fiscalrn2013.  The increase to the upfrontrnpremium will cost new borrowers an average of approximately $5 more perrnmonth.  The agency said in itsrnannouncement that the increases were marginal and affordable for nearly allrnhomebuyers who would qualify for a new mortgage loan. </p

Details ofrnthe rate increases will be published in a Mortgagee Letterrn to FHA-approved lenders. Borrowers already in an FHA-insured mortgage orrnHome Equity Conversion Mortgage (HECM) will not be impacted by the pricing changesrnannounced today nor will borrowers in special loan programs which will be outlinedrnin FHA’s forthcoming Mortgagee Letter.

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