In part due to the increasing share of new mortgages being financed under its auspices, the Financial Housing Administration (FHA), is once again raising costs on its annual mortgage insurance premiums, effective April 18th.
The increase, which will comprise of a 0.25% rise in costs for both 15 and 30 year fixed-rate mortgages, is part of an FHA adjustment to its annual mortgage insurance premiums. The change will result in an increase of about $250 yearly (or about $21 per month) for every $100,000 borrowed.
While not a large increase in and of itself, the increase is the third that the FHA has approved for mortgage insurance premiums in the past year, citing a need to bolster its cash reserves from 0.5% up to the 2% set by federal mandate.
FHA loans have gained in popularity over the past few years, as low home prices and a dearth of funding options have attracted younger and first-time homebuyers to the FHA program’s relatively lenient underwriting terms. With a minimum downpayment requirement of only 3.5%, the FHA has been a go-to resource for borrowers lacking the substantial downpayment now preferred by many private lenders.
The large number of mortgages backed by the FHA has meant that the organization is now deeply entwined with instability in the housing market, provoking the governmental insistence that the organization remain viable even in the potential face of a wave of defaults.
A report released by the Obama Administration in February of this year concluded that the federal government is over-involved in the housing market, and suggested that agencies such as the FHA should begin a process of extraction that includes the raising of insurance premium fees. A more expensive FHA-backed loan, the report reasoned, would move borrowers back into the private sector for loans, and leave the FHA primarily as a refuge for disadvantaged borrowers, and as an underwriter of last resort in times of economic crisis. The rise in FHA borrowing costs is anticipated to raise costs in the private sector as well, resulting in higher mortgage expenditures for borrowers across the board.
See Also: Reforming America’s Housing Finance Market
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