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FHA: Lower Premiums Will Not Cost Taxpayers

The Federal Housing Administration’s new lower annual premiums on insurance for home buyers will not come at the cost of another taxpayer bailout, Julian Castro, the secretary of the Housing and Urban Development, told CNBC Monday. HUD regulates FHA, which insures home loans with down payments as low as 3.5 percent.

On Monday, the FHA lowered its annual premiums on the loans it insures from 1.35 percent to 0.85 percent. The move is expected to save a typical first-time home buyer about $900 a year. During the housing crisis, the FHA had raised its annual premiums 140 percent. The rise in premium prices was blamed for sidelining thousands of potential home shoppers. FHA rose its premiums to replenish its capital reserves, which were depleted during the housing crisis due to a high number of defaults.

Last year, FHA regained its financial footing and was back in the black with its financing. But in 2013, the agency did require a $1.7 billion taxpayer bailout.

Lowering the insurance premiums for buyers "is a very prudent step in the direction of providing middle-class families with opportunities for buying a home," Castro told CNBC. "We're not changing who qualifies for an FHA loan. What we're talking about here is affordability.” FHA’s insurance fund gained about $21 billion in the past few years, mostly attributed to its new borrowers who had stellar credit. If the FHA had not lowered its insurance premiums, the agency stood to lose considerable market share – and jeopardize funding again to the FHA fund. In a move to open its credit box, Freddie Mac and Fannie Mae recently announced that first-time buyers can qualify for loans with down payments as low as 3 percent.

Daily Real Estate News | Tuesday, January 27, 2015 Source: “HUD Boss on FHA Loans: ‘We’re Not Changing Who Qualifies,’” CNBC (Jan. 26, 2015)