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FHA Insurance Premium Cut

FHA Insurance Premium Cut

The Federal Housing Administration is expected to reduce the insurance premiums on mortgages it insures effective at the end of January. The current rate of 1.35% of the loan amount will be reduced to .85% after having been raised five times since 2008. This change could potentially benefit hundreds of thousands of borrowers but will come at a cost of more risk on FHA-insured mortgages. The FHA, which received a bailout in 2013 after two years of losses, has still not returned to its required two percent capital reserve.

FHA loans allow as little as a 3.5% down payment by the borrower. Fannie Mae and Freddie Mac rules for conventional loans have also recently reduced minimum down payments to as little as 3%, but require private mortgage insurance to be paid by the borrower.Although this move will be welcomed by mortgage lenders and real estate professionals it will also be subject to criticism by those who believe it will lead to another round of losses to be borne by the taxpayers.

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