The U.S. Department of Housing and Urban Development (HUD) announced today that the Federal Housing Administration (FHA) will reduce the annual premium that most borrowers pay on FHA loans by 25 basis points, or 0.25%.
Like Fannie Mae and Freddie Mac, FHA doesn't make loans, but rather provides a safety net for lenders. The fee charged on an FHA loan is a "mortgage insurance premium" FHA takes in exchange for insuring the percentage of the loan above 80%. The premiums fund FHA's Mutual Mortgage Insurance Fund, which helps FHA protect against losses incurred if borrowers run into financial troubles.
"After four straight years of growth and with sufficient reserves on hand to meet future claims, it's time for FHA to pass along some modest savings to working families," HUD Secretary Julian Castro said.
The new premium schedule applies to loans with an insurance endorsement date of January 27, 2017 or later. This change is expected to save the average home buyer $500 per year in insurance costs.