FHA Hikes Mortgage Premiums

Without the benefit of a more refined risk-based pricing structure, the Federal Housing Administration said earlier this week that it would hike its upfront mortgage premiums for all purchase money mortgages and full-credit qualifying refinances. In a letter to lenders, FHA said it would add 25 basis points to its mortgage premium, bringing the upfront premium charged to most borrowers to 1.75 percent of the total loan amount. That change would amount to an additional $500 up-front charge on a mortgage of $200,000. The FHA also said its up-front premiums for streamlined refinances will be 1.50 percent, whlie FHASecure loans will carry a 3.00 percent premium; all changes to premiums will go into effect on October 1, as per the Housing and Economic Recovery Act of 2008. The legislation places a one-year moratorium on FHA’s use of risk-based pricing; FHA had instituted a RPB structure in mid-July of this year. Dept. of Housing and Urban Development secretary Steve Preston has in the past expressed concern over the moratorium on risk-based pricing, suggesting that it put the FHA at greater risk. “FHA will have to increase premiums across the board on all borrowers or, alternatively, seek taxpayer funds in October to cover potential losses, or cut back on the program at the very time we are an island of hope for hundreds of thousands of Americans,” he said in remarks delivered to an FDIC forum on affordable and low-income lending during July. Those increased premiums will now be a reality; the practical outcome of the new premiums is that borrowers will be asked to pay more for an FHA-endorsed mortgage, right as the government agency has seen interest in its loans skyrocket. That interest has been particularly strong among subprime borrowers, who have flocked to FHA-backed loans in the wake of the implosion of the private-party subprime mortgage market. FHA said it was providing advance notice of the new premium structure to give lenders time to update their systems to comply with the new guidelines. A planned $300 billion expansion of the FHA’s insured lending capacity also goes into effect on Oct. 1, as well, as part of the housing relief bill. Lenders are being asked to voluntarily write-down principal on eligible loans and to refinance troubled borrowers into FHA-backed mortgages. Related links: FHA moratorium announcement