FHA to Cut Insurance Premiums

From Reuters “The Federal Housing Administration will reduce annual mortgage insurance premiums by 0.5 percentage point to 0.85 percent from 1.35 percent, the White House said on Wednesday.

The premium cut is the latest in U.S. government efforts to widen mortgage access against a backdrop of tighter lending standards since the financial crisis.

The FHA, which insures about one-fifth of all new U.S. mortgages, is a major provider of mortgages to first-time homebuyers. With an FHA-backed loan, buyers can put down as little as 3.5 percent of the purchase price.

In December, U.S. mortgage firms Fannie Mae and Freddie Mac launched programs to allow down payments as low as 3 percent of a property’s value.

“If you want to call it a tennis match between Fannie and the FHA, they just returned Fannie’s serve,” said Chris Freemott, an executive at Midwest Equity Mortgage in Oak Brook, Illinois.

In a statement, the White House said the reduction was part of President Obama’s efforts “to expand responsible lending to creditworthy borrowers.”

The administration also will be taking additional steps over the coming months to “cut red tape and clarify lending standards” to make mortgages more affordable and accessible to creditworthy families, the White House said.

Homebuilder stocks were among the top performers on Wednesday, with PulteGroup Inc and Lennar Corp each ending regular trade up 4.9 percent.

The FHA was forced to draw on $1.7 billion in taxpayer funds in 2013, for the first time in its history. The FHA has since returned to the black, in part by raising the mortgage insurance premium fees it charges borrowers.

However, its mortgage insurance fund’s capital ratio remains below the legal requirement and the FHA said in its latest audit that it would not meet this minimum until 2016.

Housing finance reform has so far proved a contentious issue in Congress, with Democrats encouraging moves to widen mortgage access to first-time and lower-income homebuyers while Republicans want to reduce the U.S. government’s role in the market.”

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