FHA set to reduce mortgage insurance premiums

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Federal agency has plans to significantly reduce mortgage insurance premiums in the near future

The U.S. Federal Housing Administration (FHA) has announced plans to cut mortgage insurance costs. The move is part of a larger endeavor that involves making it easier for families to purchase homes throughout the country. The FHA has a program that offers those with modest incomes the chance to purchase homes. This program is designed to support those that do not have enough money to make a significant down payment on a property.

Insurance coverage for lenders has made it easier for consumers to purchase homes

The FHA does not issue loans directly, but provides insurance coverage for lenders in the event that a potential homeowner defaults of their mortgage. This mortgage insurance has made it possible for hundreds of thousands of people throughout the United States to buy their first homes, but it had also placed the federal agency in a problematic position in the past. In 2013, the agency required a $1.7 billion bailout, the first it had received in 79 years.

Lowered insurance premiums could make home ownership more affordable for 2 million Americans

home house mortgage insuranceThis bailout was needed to ensure that the agency recovered from the losses it saw during the 2008 financial crisis. The agency has had to raise the rates on its coverage five times. Currently the annual premium for the mortgage insurance it offers to lenders in 1.35%. The agency expects to reduce this premium to 0.85% under the new policies that will be introduced in the coming weeks. The Department of Housing and Urban Development, which manages the FHA, believes that these new policies will make home ownership more affordable for more than 2 million people throughout the United States.

Lawmakers are concerned that FHA does not have enough capital to withstand another housing market shock

The new policies that will affect mortgage insurance do not have universal support, however, as some lawmakers suggest that the FHA does not have the capital needed to withstand potential financial disasters in the future. If another real estate slump occurs, taxpayers could bear a significant portion of the financial burden that a downturned market represents.

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