One Year In: FHA Profiles Impact of Mortgage Insurance Changes

Mortgage Insurance

According to a one-year review of a U.S. Department of Housing and Urban Development’s (HUD) Annual Mortgage Insurance Premium (MIP) program—which implemented a 35% cut in mortgage insurance premiums paid by Federal Housing Administration-insured mortgages (FHA) for everyone who purchased or refinanced a home starting March 20, 2023—has saved the average borrower $876 annually adding up to a collective $600 million for the 682,000 borrowers in the program. 

FHA’s MIP reduction remains a cornerstone of the Biden-Harris Administration’s efforts to make homeownership more accessible and affordable for the nation’s working families, particularly households of color whom FHA serves at rates that far exceed other mortgage market participants. 

“One year ago today, we cut mortgage insurance premiums and helped thousands of homeowners save more of their hard-earned money,” said HUD Secretary Marcia L. Fudge. “This has been one of the crowning achievements of my tenure. I’m proud to reflect on the ways this historic action has already made a real difference in the lives of FHA borrowers, including many first-time homebuyers and households of color.” 

“At a time when homebuying has become more expensive and feels out of reach for many, the MIP cut puts money back into the pockets of American homebuyers and helps more well-qualified borrowers achieve the benefits of homeownership,” said Federal Housing Commissioner Julia Gordon. “Our ability to make such a significant premium reduction was based on a solidly performing Mutual Mortgage Insurance Fund in fiscal year 2022 and prudent risk assessment of our portfolio.” 

Details on the FHA’s annual Mortgage Insurance Premium Program

FHA mortgage insurance facilitates broader availability of mortgage financing for low-and moderate-income households by reimbursing lenders for losses when a loan defaults. The mortgage insurance premium revenues received by FHA offset mortgage insurance claims it pays to lenders, enabling the program to operate without government subsidy. 

FHA’s annual MIP is calculated as a percentage of the outstanding loan balance. For example, an outstanding loan balance of $200,000 with a 0.55% annual MIP (the standard pricing for most FHA-insured mortgages), would yield an annual MIP amount of $1,100. Lenders typically assess the annual MIP via 12 equal payments included in a borrower’s monthly mortgage payment. 

The MIP constitutes a portion of the costs considered in determining a household’s eligibility for mortgage credit. A lower MIP allows more homebuyers to qualify for FHA-insured mortgages, expanding homeownership opportunities for qualified borrowers. 

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Kyle G. Horst

Kyle G. Horst

Kyle G. Horst is a reporter for MortgagePoint. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography including best newspaper design by the Associated Press Managing Editors Group and the international iPhone photographer of the year by the iPhone Photography Awards. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at kyle.horst@thefivestar.com.
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