FHA raises annual premiums as gas, food prices increasing

by Karen Lawson
March 6th, 2011

FHA recently announced an increase of 0.25 percent for mortgage loans assigned FHA case numbers issued on or after April 18. Details of the premium increase are contained in HUD Mortgagee Letter 11-013, and confirm that no increase to the up-front mortgage insurance premium, or UFMIP, is scheduled.

The UFMIP is currently set at one percent of the original mortgage amount before the UFMIP or other costs are added. In this instance, a $200,000 FHA loan would require a UFMIP in the amount of $2000 to be paid at closing or added to the mortgage loan amount.

FHA torn between providing affordable home financing and replenishing falling cash reserves

FHA is struggling with diminishing cash reserves used to pay mortgage insurance claims on defaulted and foreclosed FHA loans, and maintaining affordable home loan programs. FHA administrators are betting on the idea that the one quarter percent increase for annual mortgage insurance premiums charged to borrowers won’t inconvenience homeowners as much as it will help FHA.

HUD, the federal agency that oversees FHA, is predicting that increasing the annual mortgage insurance premium will add $3 billion annually to the mutual mortgage insurance fund. This projection is based on current loan volume estimates. The annual mortgage insurance premium for FHA loans is pro-rated monthly and added to monthly mortgage payments along with funds required for paying property taxes and hazard insurance premiums.

FHA estimates that the increased annual mortgage insurance would add about $30.00 per monthly mortgage payment, but the actual annual premium amount paid by individual borrowers varies depending on FHA loan amounts and and down payments.

Gas, groceries and FHA mortgage payments: Going up, anyone?

With escalating food and gas prices, the news about increasing FHA mortgage insurance premiums appears to be par for the course. FHA has to adhere to legislative regulations requiring it to maintain a certain level of cash reserves on hand, while also honoring its commitment to providing affordable home ownership options for moderate income Americans.

FHA has also taken on a larger market share of mortgage loans due to its ability to refinance up to 97.5 percent of current home value. This has provided an escape route for homeowners who would not otherwise qualify for refinancing to lower mortgage rates through no fault of their own.

What remains to be seen is how increasing FHA fees and costs for every day living expenses will impact the ability of moderate income buyers and homeowners to qualify for home purchase and refinance mortgage loans. We’re hoping that rising prices of everything from food to FHA loans won’t interfere with promising signs of an economic recovery.

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