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Federal Housing Administration Lures Home Buyers with Lower Fees

Updated on January 9, 2015

White House Seeks to Jump-Start Home Buying

Home buyers in the Washington area can expect more favorable mortgage rates after the White

House announced this week the Federal Housing Administration will reduce its loan fees.

The White House estimated an additional 250,000 home buyers will take out FHA loans in the next three years because of this week’s announcement. Each of them is expected to save about $900 per year.

FHA annual premiums have increased five times since 2010, from 0.55 percent of loan value to 1.35 percent. The White House plans to reduce the fees to 0.85 percent by the end of January.

FHA loans are most popular among first-time home buyers. However, fees rose and credit restrictions tightened after the recession that began in 2008, putting them out of reach of many buyers.

Lenders admit they are turning away more customers but say it is necessary to avoid government fines.

The FHA has been under pressure from real estate industry groups, such as the National Association of Realtors, to lower its fees. Thirty industry groups, led by the Mortgage Bankers Association, wrote a letter to President Obama this week urging him to lower FHA fees.

Some fiscal conservatives say the White House decision increases the risk of a taxpayer bailout of the FHA in the future.

The FHA does not issue the loans. It insures lenders against defaulted loans. The insurance premiums are taken from fees the FHA imposes on loans it insures.

The FHA was hurt badly during the last recession as many borrowers turned to FHA-backed loans when credit restrictions tightened among other lenders. The number of FHA loans rose dramatically but so did the default rate, nearly depleting the agency’s cash reserves.

By 2013, the FHA was forced to seek a government bailout for the first time in its 80-year history when it drew $1.7 billion from the U.S. Treasury.

The announcement of lower fees this week means a borrower taking out a $200,000 loan can expect to pay $142 a month in FHA premiums, down from $225 a month now.

Among those who spoke out in favor of the new policy was Rep. Maxine Waters (D-CA), who said in a statement the FHA announcement is a positive step forward that opens the possibility of homeownership for more Americans, and provides existing homeowners with savings that are critical to securing the financial future of American families.

The Federal Housing Administration is lowering fees to help the housing market recover from recession.
The Federal Housing Administration is lowering fees to help the housing market recover from recession. | Source

FHA Helping or Hurting Economy?

Should the Federal Housing Administration lower its fees if there is a risk tax money might be used to subsidize its loan fees?

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