Congress Passes Bill Increasing FHA Premiums

The ""Federal Housing Administration"":http://www.fha.gov (FHA) has received congressional approval to raise borrowers' annual premiums for single-family mortgage insurance.
[IMAGE] House Resolution (HR) 5891 passed the Senate late Wednesday. It cleared the House last Friday, and now heads to President Obama's desk for final sign-off.

The bill allows FHA to increase the statutory cap of the annual fee charged for federal mortgage insurance three-fold, from 0.55 percent to 1.55 percent.

On April 5th, FHA raised borrowers’ up-front mortgage insurance premiums from 1.75 percent to 2.25 percent â€" a move that did not require congressional approval. Now that the agency has been granted the authority to raise the annual fees assessed, FHA has said it will shift some of the premium increase from up-front to the annual cost, which is paid over the life of the loan instead of at the time of closing.

FHA Commissioner David Stevens has indicated that he may not need to raise premiums to the maximum.

Robert Story, Jr., chairman of the ""Mortgage Bankers Association"":http://www.mortgagebankers.org (MBA) says a small increase in the annual premium, coupled with a decrease in FHA's upfront premium, will help stabilize FHA while lowering closing costs for many borrowers.

[COLUMN_BREAK]

The premium increases give FHA a means of increasing its capital reserve funds, which as of the end of fiscal year 2009 had deteriorated to its lowest level in the agency’s 75-year history. FHA is required by law to keep its capital reserve nest egg at a minimum of 2 percent of all the mortgages it insures against default. But rising delinquencies and the stress of the nation’s housing woes pushed the agency’s reserve purse to just 0.53 percent last year.

A larger FHA reform bill â€" which includes not only the premium increase, but also gives FHA greater enforcement authority against lenders who originate bad loans â€" is currently on the legislative table. And although the House had already approved the full-length reform bill, lawmakers pulled out the provision for the premium increase and made it a separate measure to speed its passage before the Senate recesses on August 7.

Both chambers of Congress also passed a companion standalone bill that addresses FHA’s multi-family business, which is being sent to the president along with HR 5891.

House Resolution 5872 increases FHA's commitment authority for its multifamily insurance programs by $5 billion for the remainder of the fiscal year. Without this increase, FHA would have exhausted its current authority sometime in mid-August and would have been forced to stop issuing any commitments to insure the loans in their current pipeline of applications until the next fiscal year, which begins October 1st.

""FHA's multifamily programs have been a critical source of funding to build and renovate multifamily and rental housing during the recent credit crunch,"" Story commented. ""MBA has been working tirelessly with officials at FHA and on Capitol Hill to help keep the program up and running and we are gratified that Congress acted before a shutdown became reality.""