FHA Raises Premiums to Cover MIP Deficit

By Stevie Duffin Updated on 12/14/2012

By Daniel Duffield

The Federal Housing Administration (FHA) intends to increase annual premiums by 10 basis points, or 0.10%, sell 10,000 delinquent mortgages quarterly, and enhance aid for borrowers in an attempt to repair the organization’s finances, U.S. Housing and Urban Development Secretary Shaun Donovan said today.

Donovan conveyed this information during a meeting in Washington one day after news was released that reported a $16.3 billion deficiency in the FHA insurance fund as a result of defaulted loans insured during the housing crisis. While the mutual mortgage insurance fund shortage was projected at $13.48, this estimate is still well below the 2011 estimate of $14.67 billion.

According to Donovan, these measures will greatly lessen the chances that the FHA will require Treasury funding during next September.

The Federal Housing Administration, which currently insures 15.78% of U.S. mortgages, provides an additional push to the market by insuring lenders from taking substantial losses on mortgage loans and allowing these lenders to issue mortgage loans with down payments as low as 3.5% with relatively beneficial interest rates. The aforementioned FHA Mortgage Insurance premium increase described today is associated with the Annual Mortgage Insurance Premium (MIP) charged to FHA borrowers as a guarantee to the lender that the debt will be repaid in the event of default.