Mortgage Insurance Premiums Increase

By Kevin Chiu

Despite the housing markets problems, the federal government is raising mortgage insurance premiums on home loans. It’s all part of ongoing efforts to strengthen the Federal Housing Administration’s (FHA) reserves.

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The increase will cover only FHA insured mortgages, raising premiums by a quarter of a point on 30-year and 15-year mortgages. One percent will be collected upfront at the time a loan is closed. The additional .25 will be added into later payments, and will affect loans insured by FHA after April 18, 2011.

The premium increase allows the FHA to raise revenues at a critical time to protect its stability in the troubled housing market, and will add $3-billion to the fund annually, according to FHA officials. Funds from the program are used to pay for homes that go into foreclosure. New FHA mortgage borrowers will pay about $30 more a month. Existing mortgages are not affected by the rise.

The increase was included in President Barack Obama’s fiscal year budget released Monday.   “After careful consideration and analysis, we determined it House for sale 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,” said FHA Commissioner David Stevens. “This quarter point increase in the annual MIP is a responsible step towards meeting the congressionally mandated two percent reserve threshold.”

FHA mortgage underwriting guidelines have come under attack for their minimum down payment requirements and high foreclosure rates, triggering Congress to push for the mortgage insurance rate increase. Obama’s budget projects the FHA will insure $218-billion in mortgages in the 2012 fiscal year.

The change is part of the administration’s housing finance program designed to repair the nation’s damaged mortgage lending system, which is expected to take a decade to fully implement. The program also recommends that Congress allow the current increase in home loan limits to expire, providing more potential loan customers to banks and mortgage companies.