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FHA mortgage insurance going up

David Stevens of the FHA

David Stevens of the FHA Credit: Bloomberg News

The most popular type of mortgages nowadays, those insured by the Federal Housing Administration, will cost about $30 more per month to the average borrower, federal officials announced Monday.

The annual mortgage insurance premium, which is paid monthly, will increase by .25 percent, starting April 18 on new loans, the agency said. The upfront mortgage insurance premium, which is paid at closing, will remain at 1 percent of the mortgage.

On Long Island, where homes cost more, the monthly increase will probably be higher than $30 because the fees are based on the amount borrowed and the mortgage term.

This will likely have a bigger effect on lower-income earners and borrowers with question marks on credit. These consumers are more likely to be referred to FHA programs, which have been popular during these tight credit times because borrowers can have less stellar credit scores and pay as little as 3.5 percent down.

FHA officials said they raised charges to boost its capital reserves, which are way below the legislated minimum due to losses on delinquent loans. The reserves should have been at $18.5 billion last September, when fiscal year 2010 ended, but was instead at $4.4 billion, an FHA spokesman said. The new pricing is expected to swell the reserves by about $3 billion per year, the agency said.

At the same time, fee increases were part of federal officials’ big announcement last week to wind down the federal role in mortgage financing and allow the private market to take over. By making FHA insurance more costly, federal officials reasoned, private insurers can compete by offering less expensive options.

“After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” said FHA Commissioner David H. Stevens, above left. “This quarter point increase in the annual MIP is a responsible step towards meeting the congressionally-mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”

The agency estimated it will insure $218 billion in mortgage borrowing in 2012.

The recent talk of higher fees and government getting out of housing financing worries officials at the Community Development Corp. of Long Island, a nonprofit housing counselor. Tuesday morning, it will hold a lending forum, with key speaker Kevin Law, chief of the Long Island Association.

“When they talk about raising fees to the individual or cutting loans, it just pushes all of us in the community to work together to make sure there are products and other ways that people can lend,” said Eileen Anderson, senior vice president over home ownership at the nonprofit.

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