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Financial Services Law Insights and Observations

FHA Increases Mortgage Insurance Premiums

Mortgage Origination HUD

Lending

On February 27, the Federal Housing Administration (FHA) announced that it is increasing its annual mortgage insurance premiums and upfront premiums in two phases. First, for loans with case numbers assigned on or after April 1, 2012 the FHA is increasing by 10 basis points the annual mortgage insurance premium, and is increasing upfront insurance premiums by 75 basis points. Subsequently, for loans with case numbers assigned on or after June 1, 2012 that exceed $625,500, the FHA is increasing the annual premium by an additional 0.25 percent. The changes are designed to encourage the return of private capital to the residential mortgage market while supplementing the FHA’s Mutual Mortgage Insurance Fund, which has fallen below the congressionally mandated two percent reserve threshold. At least one report recently suggested that based on current home price and default projections the fund will become insolvent without action.  The increased premiums are projected to contribute more than $1 billion to the FHA's mortgage insurance fund, and on average will cost new home buyers $5 per month.