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FHA Mortgage Insurance Costs to Rise

October 19, 2012

Effective Jan 2013 FHA will increase the uprfront FHA mortgage premium from 1.75% to 2.05%.

On a typical So Cal housing price of $400k, the upfront preimium will increase from $7,000 to just $8200.

Here are the specifics

The Federal Housing Administration (FHA) Fiscal Solvency Act of 2012 has been passed by the full House of Representatives by a vote of 402-7. (The Senate passed legislation last summer and the changes will go into effect Jan. 2013).

The Fiscal Solvency Act includes provisions to strengthen and broaden the ability of the U.S. Department of Housing & Urban Development (HUD) to avoid or recoup losses for loans originated or underwritten by a mortgage lender which did not comply with FHA guidelines, as well as expand HUD’s ability to terminate the authority of poorly performing lenders to participate in FHA programs.

The FHA insures more than $1 trillion worth of mortgages on more than seven million loans. As of November 2011, the FHA’s capital reserve fund was estimated at 0.24 percent—far short of the two percent required by statute.

Due to deteriorating financial conditions, the Administration’s fiscal year 2013 budget projects that the FHA may require $688 million in taxpayer assistance to shore up its financial position.

In order to mitigate financial risk within the FHA, HR 4264 would:

Give HUD the authority to charge up to a maximum premium of 2.05 percent annually on mortgage insurance (MI)

Establish a minimum annual premium for MI of 0.55 percent

Bar unscrupulous lenders from participating in the program

Require repayment of losses to FHA by lenders who committed fraud

Improve the FHA’s internal financial controls, transparency, and disclosure requirements

Require the Government Accountability Office (GAO) to conduct an independent safety and soundness review of the FHA.


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