WASHINGTON – The Federal Housing Administration (FHA) lowered its mortgage-insurance premium (MPI). The MPI – a fee charged to FHA borrowers largely meant to offset the risk from foreclosures – was lowered by 30 basis points. It announced the change in Mortgagee Letter 2023-05.

MPI money goes into FHA’s capital reserve, and federal law requires a capital reserve ratio of 2%. In their 2022 annual report to Congress, however, FHA reported an 11% capital reserve ratio – 9% above the requirement. That allows FHA to lower the premium for borrowers going forward.

The reduction will benefit about 850,000 borrowers over the coming year, FHA claims, saving them $678 million overall. For the average borrower purchasing a one-unit, single-family home, it means a savings of more than $1,400 per year ($117 per month), assuming a 3.5% down payment and a national median home price of $467,700.

However, FHA loan borrowers often buy homes toward the lower end of the price range, and FHA says its average borrower will likely see savings in the $800 per year range ($67 per month).

The National Association of Realtors® (NAR) and other housing organizations have been pushing for a lower MPI, and their advocacy grew stronger in 2022 as mortgage rates began their rapid rise.

“FHA’s announcement strikes an appropriate balance between assisting homeowners and ensuring the capital reserve ratio and insurance fund remain strong,” says NAR President Kenny Parcell. “We applaud the Administration for this action. In this competitive market, new and low- to moderate-income buyers are often left behind. This reduction will help alleviate some of the financial stress those potential buyers encounter when purchasing a home and allow more people across the country to achieve the American Dream of homeownership.”

© 2023 Florida Realtors®