Fresh off capital injections from the mortgage settlement, the FHA is raising premiums to stay in the black.
The Federal Housing Administration (FHA) has officially announced that, in an effort to boost its Mutual Mortgage Insurance Fund (MMI), it will raise its insurance premiums in April.
Confirming statements made last week by the agency’s Acting Director Carol Galante, the changes will raise premiums from 1 percent of the base home loan amount to 1.75 percent, regardless of the loan’s term or LTV ratio, based on funding measures authorized by Congress’ latest payroll tax cut extension.
According to HousingWire’s Jon Prior, the increase will add an additional $1 billion to the FHA’s insurance fund, as the annual insurance premium will rise by 10 basis points for loans under $625,500 and 35 basis points for loans above, though the latter amount will not take effect until June. Both reverse mortgages and special loan programs will be exempt from the changes.
Galante said that the premium increase was primarily instituted to meet Congressionally-mandated thresholds for FHA solvency.
“After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” Galante said. “These modest increases are one of several measures we are taking towards meeting the Congressionally mandated 2 percent reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers.”
Funds at the FHA had been operating under precarious circumstances. In 2008, the agency’s MMI fund fell below the 2 percent threshold Galante referred to, mostly because of a growing number of distressed properties on the FHA’s books. In 2011, it fell to 0.2 percent, a level that inspired many to warn of an impending insolvency for the firm.
Just when analysts were predicting a bailout of the agency, though, the mortgage settlement between the state attorneys general and the nation’s five largest banks arrived, and as part of the agreement, the banks injected $1 billion in fresh funds into the FHA’s capital reserve fund to compensate for the monetary damages due to fraud and foreclosures.
And though many credited the settlement for saving the agency’s books, the premium hikes suggest the FHA is not taking its return to solvency for granted, a position reinforced by comments made yesterday by Galante.
“The FHA is not broke,” Galante said at a house subcommittee hearing, according to HousingWire. “It would take very significant declines in home prices in 2012 to create a situation where FHA would need additional support.”