The Federal Housing Administration (FHA) announced that it is increasing both upfront and annual premiums for its insured single family loans. An increase of 0.10 percent in the annual premium mandated by the Temporary Payroll Tax Cut Continuation Act of 2011 will be effective for all loans written after April 1. In addition, FHA is exercising its statutory authority to raise other fees for the specific purpose of strengthening FHA's Mutual Mortgage Insurance Fund (MMI).
The upfront premium for all loans will also increase by 0.75 percent on April 1. The upfront premium will thus increase from 1 percent to 1.75 percent of the base loan amount regardless of the amortization term or loan-to-value ratio of the loan. FHA will continue to permit financing of this charge into the mortgage. Finally, on June 1 an additional increase of 0.25 percent will be imposed on FHA-insured loans with principal balances over $625,000 bringing the total hike in those large loan fees to 0.35 percent.
Acting FHA Commissioner Carol Galante said, "After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market. These modest increases are one of several measures we are taking towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers."
FHA estimates that the premium changes will, in the aggregate, add more than $1 billion to the MIF based on the current volume projections through Fiscal 2013. The increase to the upfront premium will cost new borrowers an average of approximately $5 more per month. The agency said in its announcement that the increases were marginal and affordable for nearly all homebuyers who would qualify for a new mortgage loan.
Details of the rate increases will be published in a Mortgagee Letter to FHA-approved lenders. Borrowers already in an FHA-insured mortgage or Home Equity Conversion Mortgage (HECM) will not be impacted by the pricing changes announced today nor will borrowers in special loan programs which will be outlined in FHA's forthcoming Mortgagee Letter.