President Obama Initiates Lower FHA Mortgage Insurance Premiums

By Sari R. Updated on 1/13/2015

President Obama recently announced that he intends to lower mortgage insurance premiums as much as half a percentage point on select FHA issued mortgages.  This change could potentially allow as many as 250,000 people to become first time homebuyers in the next year.  Obama expressed a desire to help families obtain the American dream of “owning a home…investing in savings…and planting roots in a community.

President Obama has been touring around the country for the past week in an effort to promote dialogue and conversation about the economy.  It was during this tour that he announced the Federal Housing Administration (FHA) mortgage insurance premium requirement would be dropped from 1.35% to 0.85%.  The FHA is mainly geared toward helping first time homebuyers and Americans who have low to moderate incomes.  These new changes will save homeowners, on average, $900 per year; these new changes will also help, on average, over two million Americans to become homeowners in the next three years.

Though the modified low rates are still higher than they were immediately following the recession, the FHA will be able to increase its reserves from $7 billion to $10 billion annually.  Prior to the recession, mortgage insurance premiums were seen at a low of 0.55%.  Homeownership rates are currently at the lowest amount the country has seen since 1995, but hopefully these new changes will change that.  It’s expected that the decrease in mortgage insurance premiums will help individuals younger than 35 to become homeowners sooner as well.

The economy is still in recovery from the 2010 recession, but it’s definitely on the right track.  The number of home sales in the last year dramatically increased by 32%, and only 8.1 million homes across the nation were marked as being “seriously underwater” at the end of 2014 (RealtyTracThis is the lowest amount of “seriously underwater” homes the country has seen since 2012.

Some commenters expressed discontent with the announcement, as they are afraid these new changes will lead to a taxpayer-funded bailout.  Obama met this critical response by saying that the FHA will still have strict underwriting standards for high-risk borrowers.