The US Federal Housing Administration (FHA) will raise the insurance premiums that it charges to borrowers in an effort to bolster its capital reserves.
Starting 1 April, the FHA, which is the country’s biggest insurer of low-down payment mortgages, will hike its up-front insurance premium by 75 basis points to 1.75 percent of the base loan amount.
Moreover, annual insurance premiums will rise 0.1 percentage point for loans less than US$625,500 (S$786,129) and 0.35 percentage points for mortgages exceeding that amount.
The agency revealed that the mortgage premium hikes are necessary to replenish its decreasing capital reserves, which dropped below the level mandated by Congress in 2009.
More red flags were raised last November when the FHA’s annual report warned that if residential property prices continued to decline in the coming year, the agency’s losses could exceed its reserves.
“After careful analysis of the market and the health of the [Mutual Mortgage Insurance] fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” said Carol Galante, acting commissioner at the FHA.
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