Magazine article American Banker

HUD Lowering FHA Premiums to Boost Minority Mortgages

Magazine article American Banker

HUD Lowering FHA Premiums to Boost Minority Mortgages

Article excerpt

The Department of Housing and Urban Development is reducing the premiums it charges to insure its mortgages, a move that could save borrowers up to $1 billion a year and spur growth for mortgage lenders that rely heavily on FHA loans.

HUD Secretary Andrew Cuomo said Monday that the agency will reduce its up-front premium by 75 basis points, or one-third of the current 225-basis-point annual premium, when homeowners have built up 22% equity in their home. It also plans to pay premium refunds to current borrowers. The changes, part of the Homebuyer Savings Plan, are to be implemented Jan. 1. The plan is modeled after private mortgage insurance legislation passed by Congress in 1998. Unlike that legislation, the department said, this program will continue to insure the mortgages after the annual premium payments are eliminated.

The initiative could boost the already record U.S. homeownership rate -- 67.7% in the third quarter, HUD reported last week -- and also give a big lift to mortgage lenders that rely heavily on FHA loans.

John A. Courson, president and chief executive officer of Central Pacific Mortgage in Folsom, Calif., said, "Obviously, we're very excited" about the program. "It's dramatic."

Mr. Courson said FHA loans make up almost 50% of his company's loans and estimated that the changes could mean up to $1,700 in savings for his customers.

Tom Jacob, chairman and CEO with Chase Manhattan Mortgage Corp., said: "It's

going to get a lot more people in new homes, especially at the lower end of the economic ladder. …

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