For the second straight year, the Department of Housing and Urban Development will cut the mortgage insurance premiums paid by borrowers with new Federal Housing Administration-insured mortgages and refinances. In announcing the 25 basis point reduction yesterday, HUD Secretary Julian Castro projected that it would save borrowers an average of $500 per year.
Under the plan, the insurance premium for FHA-backed loans would fall to 0.55 percent for loans with terms longer than 15 years and loan-to-value ratios of 95 percent or less. The cut -- criticized as irresponsible by many Republicans on Capitol Hill -- takes effect for loans that close on or after Jan. 27.
The FHA’s Mutual Mortgage Insurance Fund reached a capital ratio of 2.32 percent in 2016, the second consecutive year since the housing crisis that its reserve ratio has exceeded the statutorily required level.