FHASecure to expand its pricing structure

WASHINGTON – May 12, 2008 – The Bush Administration issued final guidance that will permit HUD’s Federal Housing Administration (FHA) to assist more homeowners struggling to keep up with their high-cost subprime adjustable rate mortgages. The FHA will implement the flexible premium pricing structure beginning July 14, 2008.

Modifications to FHASecure will help homeowners who can no longer afford their mortgages and who missed up to three monthly mortgage payments over the past 12 months. As an alternative to foreclosure, eligible borrowers can refinance with FHA and lenders can voluntarily write down the outstanding subprime mortgage principal balances. Implementation of FHA’s new premium pricing plan on July 14 will coincide with the start date to expand FHASecure.

“Fair pricing will allow FHA to reach more troubled homeowners without placing excessive risk on its insurance fund,” says HUD Deputy Secretary Roy A. Bernardi.

Currently, FHA has a ‘one size fits all’ premium structure that charges borrowers 1.50 percent of the loan balance upfront and .50 percent annually regardless of their credit standing. Under the new rule, FHA’s upfront mortgage insurance premium will range from 1.25 percent to 2.25 percent. Borrowers must continue to adhere to FHA’s strict underwriting criteria, but by charging different premiums, FHA will operate like most other insurance companies. This premium structure will preserve lower premium costs for FHA’s traditional borrowers, including low-income and minority families who have a strong credit history and a downpayment.

By charging slightly higher premiums based on risk, FHA will be able to extend the benefits of its FHASecure program to more homeowners affected by the volatility in the mortgage market. Borrowers refinancing into FHA from the subprime market are better off, even with slightly higher mortgage insurance premiums, because FHA insurance gives them access to substantially lower interest rates, and lowers their overall mortgage costs. The difference between the existing 1.50 percent upfront premium and a 2.25 percent premium for a $150,000 mortgage is only about $7 per month.

“Charging borrowers a fair premium based on their credit risk means that they pay their own way, allows FHA to reach more borrowers, and helps create a more financially sound FHA. That’s good news since FHA, like any other insurance company, supports its flagship program through its premiums – not taxpayer dollars,” says Assistant Secretary for Housing-Federal Housing Commissioner Brian D. Montgomery.

© 2008 FLORIDA ASSOCIATION OF REALTORS®

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