By Peter Ricci
In an effort to shore up its troubled finances, the Federal Housing Administration (FHA) has announced several changes to how it manages its loans, including increasing the mortgage insurance premiums for new mortgages.
Starting this week, the FHA will increase the annual mortgage insurance premium on loans it guarantees by 0.10 percent (10 basis points), while the premiums on jumbo mortgages, which FHA standards consider mortgages of $625,000 or more, will increase by 5 basis points.
Mortgage Insurance Premium Changes & More
The finances of the FHA, and the agency’s responses to remedy them, have been an ongoing story the past year, one boasting more twists than a bag of pretzels. In addition to increasing the mortgage insurance premiums, here are the other changes the FHA announced:
- FHA borrowers will now have to pay mortgage insurance premiums through the life of their loan; previously, the FHA had eliminated premium payments when the borrower’s principal balance reached 78 percent of the original balance.
- Carole Galante, the FHA’s commissioner, explained that by forgoing that final 22 percent of the loans balance, the FHA was missing out on billions in potential revenue: “These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs,” she said.
- Additionally, the FHA will also require lenders to manually underwrite loans for borrowers with credit scores of 620 or lower and debt-to-income ratios of more than 43 percent, along with increasing the down payment requirement on jumbo loans from 3.5 percent to 5 percent.
Will This Save the FHA?
At the end of the day, one question still persists – will these changes, drastic as they may be, save the FHA, and help it avoid a taxpayer bailout similar to what Fannie Mae and Freddie Mac required? We’ll get a better idea in a couple months, when the agency begins releasing the results of these new mortgage insurance premium policies, though it is worth mentioning that the FHA raised its premium requirements on two separate occasions in 2012, yet it still needed to further raise its costs for 2013.
But what are your thoughts? Will these new standards be enough?