The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) have announced a 30-basis-point reduction to annual mortgage insurance premiums (MIP) charged to homebuyers with FHA mortgages.
The move, which specifically reduces premiums from 0.85% to 0.55% of the loan amount, will apply to almost all Single Family Title II forward mortgages insured by the FHA. Premium cuts will officially take effect on March 20. Eligible property types include single-family homes, condominiums and manufactured homes.
According to HUD, the reduction will save $800 a year for the average FHA borrower with a $265,000 mortgage on a single-family home. For an FHA borrower with a mortgage of $467,700 (the national median home price in December 2022), they’ll save more than $1,400 in the first year of the loan. An estimated 850,000 current homeowners and future buyers will save from the reductions over the coming year, per HUD’s statement.
Reducing the MIP also can help more applicants qualify for mortgages, HUD said.
“At a time when budgets are tight and homeownership is out of reach for too many, FHA’s premium reduction will allow more households to access the stability and wealth creation of homeownership, particularly the first-time homebuyers and families of color who rely heavily on affordable FHA-insured mortgages,” said Julia Gordon, HUD’s assistant secretary for housing and federal housing commissioner. “For many families, the savings will make the difference in their ability to purchase the home of their choice.”
The reduction comes as part of an ongoing plan from the Biden administration to advance its stated goal of promoting housing stability and affordability. A statement from the White House explained that cuts were made possible due to the accumulation of FHA’s mortgage insurance fund reserves, which are currently at more than five times the required threshold set by Congress.
“For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth building and homeownership,” HUD Secretary Marcia L. Fudge said. “Today we are building on the steps we’ve taken to make homeownership more affordable, and HUD is acting to ensure people feel comfortable purchasing a home as they build toward their future. As we reduce housing costs for people with FHA mortgages, we continue our work to address long-standing disparities in homeownership.”
The move was met with praise from many within the mortgage lending community.
“The lower premiums will expand homeownership opportunities by lowering mortgage payments for qualified FHA borrowers, providing critical relief from the steep rise in mortgage rates and home prices just in time for the spring buying season,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “This will especially help minority homebuyers and low- and moderate-income households who are predominantly served by FHA loans.”
“CHLA strongly commends the Biden administration and FHA Commissioner Gordon for today’s announcement that FHA is cutting premiums,” said Scott Olson, executive director of the Community Home Lenders of America. “Long a top CHLA priority, an FHA premium cut is critically needed to ensure minorities and other underserved borrowers have affordable access to mortgage credit in a period of rising mortgage rates and homeownership affordability challenges.”
Not all industry observers, however, were in support of the premium cuts. Tobias Peter, assistant director of the American Enterprise Institute (AEI) Housing Center, called the move the beginning of “another pointless government mortgage pricing war.”
“When the inventory of homes for sale is tight, credit easing cannot bring in many new buyers since there are already too many buyers chasing too few homes,” Peter wrote on AEI’s blog. “However, credit easing will cause the surplus of buyers to use their newly minted buying power to bid up the price of houses.”