Breaking Mortgage News: FHA to Hike Mortgage Insurance Premiums

Other changes, fees aimed at shoring up agency’s finances

The Federal Housing Administration announced Wednesday that it will increase the mortgage insurance premiums it charges as part of several steps being taken to shore up its finances.

The agency also will require borrowers to pay mortgage insurance for the life of the loan.

Annual mortgage insurance premiums will rise by 0.10 percent for most new mortgages and  0.05 percent for loans of $625,500 or more. 

In addition, homeowners with FHA-backed mortgages will be required to continue paying the premiums, based on the unpaid balance, for the life of the loan. Premiums no longer will be canceled when a homeowner has repaid 22 percent of the loan’s principal.

Down payment requirements for loans of more than $625,500 will increase. Instead of the current 3.5 minimum down payment, borrowers will have to put down 5 percent.

It also will become more complicated for borrowers with low credit scores and high debt-to-income ratios to get a loan. Other changes are planned for the agency’s reverse mortgage program. 

The changes will be officially announced in the coming days, according to the FHA. 

“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs,” said FHA Comissioner Carol Galante in a release.

The FHA’s insurance fund had a $16.3 billion deficit at the end of fiscal 2012, with much of its problems tied to mortgage loans insured by the agency between 2007 and 2009.  In its annual report to Congress in November, the U.S. Department of Housing and Urban Development said claims against the FHA’s insurance fund that are tied to those loans are expected to total $70 billion.

Since 2009, the FHA already had increased mortgage insurance premiums four times to help protect itself against potential losses. 

Last year, the FHA insured nearly 1.2 million single-family mortgages with a total value of $213 million. About 78 percent of those loans were made to first-time homebuyers.