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FHA to Reduce Mortgage Insurance Premiums by 0.5 Percent

Phil Hall
Jan 07, 2015

In advance of President Obama’s speech tomorrow in Arizona on housing policy, the White House has issued confirmation that the Administration is directing the Federal Housing Administration (FHA) to cut the annual mortgage insurance premium from 1.35 percent to 0.85 percent.

The White House is billing this development as “a major new step … to make mortgages more affordable and accessible for creditworthy families,” adding that homeowners who refinance into an FHA mortgage will also see similar reductions to their mortgage payments.

“In total, this action will help millions of families save billions of dollars in mortgage payments in the coming years, helping to support the housing market recovery,” the White House statement claimed.

“This action will make homeownership more affordable for over two million Americans in the next three years,” said Julián Castro, U.S. Department of Housing & Urban Development (HUD) Secretary. “Since 2009, the Obama Administration has taken bold steps to reduce risks in the mortgage market and to protect consumers. These efforts have made it possible to take this prudent measure while also ensuring FHA remains on a positive financial trajectory. By bringing our premiums down, we’re helping folks lift themselves up so they can open new doors of opportunity and strengthen their financial futures.”

According to the White House’s data, this new 0.5 percentage point reduction in premiums will generate an average savings of $900 annually for all new FHA borrowers. The Administration projects that more than 800,000 FHA borrowers will benefit from these lower rates during 2015 while creating “opportunities for 250,000 new homeowners to purchase a home over the next three years.”

This new policy shift does not require congressional approval, and it can be seen as part of the administration’s strategy of using Executive Branch action to promote its domestic policies.

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