FHA announced Monday that it is cutting its annual mortgage insurance premiums for the second time in two years.
According to the FHA, it will cut the annual mortgage insurance premiums by one-quarter of a percentage point, or 25 basis points. Projecting that new premium rates will save new FHA-insured homeowners an average of $500 in 2017.
“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” Housing and Urban Development Secretary Julián Castro said in a statement.
The agency, which is part of the Department of Housing and Urban Development, offers mortgage insurance, often to first-time home buyers and those with low income or below top-notch credit. The insurance protects lenders in case of defaults.
The premium reduction was projected to lower the cost of housing for about 1 million households that are expected to purchase a home or refinance their mortgages using FHA-insured financing in the coming year, according to HUD. The planned cuts will lower FHA insurance premiums to 55 basis points from 80 basis points on mortgages with loan-to-value ratios of or below 95. Premiums on riskier mortgages will drop to 60 basis points from 85 basis points.
The move places FHA mortgage insurance premiums “basically back to the pre-crisis levels” of 50 to 55 basis points, the statutory floor, J.P. Morgan analysts wrote in a research note. After the housing crisis, the FHA raised its insurance premiums numerous times to replenish the Mutual Mortgage Insurance Fund.
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