Some great news regarding MIP! The Federal Housing Administration will lower mortgage insurance premiums for borrowers who refinance their loans as part of President Barack Obama’s plan to improve the housing market. The FHA will reduce up-front premiums to 0.01 percent of total loan amount from 1 percent under the plan announced by Obama. Annual fees will be cut to 0.55 percent from 1.15 percent for borrowers with FHA loans made before June 1, 2009, according to a fact sheet distributed by the Obama administration. “I’m not one of those people who thinks we should just sit by and wait for the housing market to hit bottom,” Obama said at a recent news conference. “There are real things we can do right now,” he said, noting that the changes don’t require congressional approval.
The fee cuts, which take effect April 9, are part of an Obama administration effort to spur the economy by helping homeowners take advantage of historically low mortgage interest rates. The changes could increase the reach of FHA’s streamlined refinance program by 3.4 million households paying interest rates higher than 5 percent, the agency said. A typical borrower would save about $1,000 a year in premiums and $3,000 a year including savings from lower rates, the FHA said. The streamlined refinance program is available to borrowers with FHA-insured loans who are current on their payments even if they owe more than their homes are worth. The program doesn’t require verification of income and employment, and it doesn’t mandate a new appraisal of the property.
The plan for FHA rate cuts to spur refinancing follows the agency’s announcement last month that it is raising premiums on new loans to replenish a reserve fund depleted by defaults in the wake of the 2008 credit crisis.
An audit released in November revealed that FHA reserves had fallen to a record $2.6 billion. The agency’s capital ratio, a measure of the its ability to withstand losses, was 0.24 percent in the year ended Sept. 30, the third straight year it failed to meet the legal minimum of 2 percent. Starting April 1, the up-front premium for new 30-year mortgages will cost 1.75 percent of the loan amount, up from 1 percent. Those increases don’t apply to the streamlined refinance program.
The reduced fees for streamlined refinancing will cost the FHA “hundreds of millions of dollars” over the next few years, though it won’t have a significant impact on the insurance fund, Housing and Urban Development Secretary Shaun Donovan said during a conference call with reporters. “It’s a relatively small amount,” he said. “We think that on net this can have close to no impact on the fund.”
content via Bloomberg with contributions from R. Runningen and L. Woellert