FHA Loans Become More Affordable as FHA Reduces Mortgage Premiums

U.S. Housing and Urban Development Secretary Julian Castro today announced the Federal Housing Administration is lowering FHA mortgage premiums by half a percent in order to save more than two million FHA homeowners an average of $900 annually. The Obama Administration estimates that as many as 250,000 new buyers would be eligible to purchase a home over the next three years.

The change comes as the FHA has been losing market share to Fannie Mae and Freddie Mac due to fee increases that began in 2008. Over the last four years, the percentage of first time homebuyers using FHA backed loans fell from 56% to 39%. The premium increase was necessary after the dramatic rise of foreclosures during the recession that reduced the FHA’s reserve fund below its congressionally mandated minimum of two percent of the value of all outstanding FHA loans. The FHA increased premiums to effectively restock reserves and is on track to meet the two percent minimum in a few months.