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The Federal Housing Administration (FHA) announced this week that it will be raising its annual mortgage insurance premium (MIP) by a quarter of a percentage point on all 30- and 15-year loans. This increase comes as part of a new premium structure for FHA-insured mortgage loans the FHA is putting in place in response to the Obama administration’s housing finance reforms. The new structure will apply to all new loans insured by the FHA on or after April 18, 2011. Existing and reverse mortgage (HECM) loans insured by FHA are not impacted by the pricing change.
The following is an excerpt from a DSNews article reported on Februay 15, 2011:
“FHA Commissioner David Stevens says the annual payment adjustment will increase borrowers’ costs about $30 per month and will help to strengthen the agency’s depleted coffers.
‘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,’ Stevens said in a statement.
He continued, ‘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 25 basis point rise was proposed last week as part of the Obama administration’s report to Congress on reforming the nation’s housing finance system, and was detailed in President Obama’s fiscal year 2012 budget released Monday.
According to FHA, this premium change enables the agency to increase revenues at a time when it is critical to safeguard the stability of its Mutual Mortgage Insurance fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010. The new pay structure is estimated to contribute nearly $3 billion annually to the fund.”