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Obama: FHA Premiums Lowered for Refis

FHA is lowering its mortgage insurance premiums to help borrowers refinance into lower interest rates, President Barack Obama announced yesterday in a national press conference at the White House. The initiative also includes help to members of the military who’ve been wrongly foreclosed on or denied a chance to refinance.

Under the FHA initiative, the agency is reducing its up-front premium to .01 percent, from 1 percent, for streamlined refinancings of loans originated prior to June 1, 2009, and cutting the annual fee for these refinancings in half, to .55 percent, from 1.15 percent.

The Administration says the two fee reductions together should save the typical FHA borrower about a thousand dollars a year, which is “on top of the savings that they’d also receive from refinancing,” President Obama said at the press conference. “That would make refinancing even more attractive to more families. It’s like another tax cut that will put more money in people’s pockets. We’re going to do this on our own. We don’t need congressional authorization to do it.”

In a scenario of how this would work provided by the White House, a typical FHA borrower with $175,000 outstanding on a mortgage would be able to reduce the monthly payments to $915 a month, assuming a new mortgage at 4 percent. Without the fee reduction, the monthly payment after a refi would be $1,010 a month.

The fee cuts begin June 11. (Details from HUD.)

President Obama used the press conference to urge Congress to pass elements of a broader housing assistance proposal he outlined in his State of the Union speech in January and which was subsequently fleshed out a few weeks later in another address. That proposal would apply the administration’s existing HARP program (Home Affordable Refinance Proposal) to all loans, not just those backed by Fannie Mae and Freddie Mac. To pay for that expansion of the program, a fee would be charged to the country’s largest banks, which received public help after the mortgage crisis hit a few years ago.

Under HARP, lenders agree to modify mortgages, even if the borrower is underwater, as long as certain requirements are met.

Under the assistance to home owners in the military, the administration says it will take the following five steps:

1. Conduct a review of every servicemember foreclosed upon since 2006 and provide any who were wrongly foreclosed upon with compensation equal to a minimum of lost equity, plus interest and $116,785;

2. Refund to servicemembers money lost because they were wrongfully denied the opportunity to reduce their mortgage payments through lower interest rates;

3. Provide relief for servicemembers who are forced to sell their homes for less than the amount they owe on their mortgage due to a permanent change in station;

4. Pay $10 million dollars into the Veterans Affairs fund that guarantees loans on favorable terms for veterans; and

5. Extend certain foreclosure protections afforded under the Servicemember Civil Relief Act to servicemembers serving in harm’s way.

Read a transcript of the President press conference yesterday.

More info on the proposal.

Watch the press conference in this CNN clip.

More about FHA fees.

The 30-second clip above features President Obama announcing the FHA fee reductions.

Robert Freedman

Robert Freedman is manager of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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Comments
  1. When does this start?

  2. Robert Freedman

    Thanks for the question. It starts June 11, according to HUD’s website.

  3. Eric

    So for those of us who purchased a home last year through an FHA mortgage, we aren’t going to be eligible for the streamlined refinancing or reduced mortgage insurance? Seems odd to me.

  4. Robert Freedman

    Eric, thanks for your note. It’s my understanding that the reduction is aimed at home owners who were caught in the severe housing market downturn of a few years ago and saw the value of their FHA-backed house drop as a result of that larger market event. It’s targeted at owners who’ve continued to make their payments and now can’t refinance because they’re underwater or otherwise don’t have sufficient equity. So, it’s really a reaction to that past market drop. That’s just my understanding. FHA would have the official reason for setting the eligibility date that they did.

  5. Meredith Silverberg

    Eric, it’s an election year. Period.
    Now how do I tell a buyer closing next month she has to pay an extra $1200 up front on an FHA loan ? This is the real problem.

  6. Jean

    “We’re going to do this on our own. We don’t need congressional authorization to do it.” This man is ONE branch of government. Is anyone else wondering how he acts as all three?

    How is someone “wrongly foreclosed on or denied an opportunity to refinance?” Either they paid and can prove so, or not. Either they met re-fi standards, or not.

    My area has hundreds of homes which have been foreclosed on in the past TWO years. We’ll never see the bottom of this market. I love the military and have a son in Afghanistan. He received a VA loan because he qualified with a service record AND good finances. Giving loans to unqualified buyers is what caused our current problems.

    Licensees, if you think government gimmicks will bring back the market, think again. This is what is ruining it.

  7. sara

    Robert Thanks for all the info. We have been trying to refinance for a while but are not able to since the housing market dropped and like so many others our house does not appraise for what we owe on it(it’s about 20,000 lower). When we bought our house we got a second mortgage instead of doing a down payment(about 6,000). We have never been late or missed a payment and have really good credit so it’s really frustrating. We bought our house in march of 2007, do you think this would make it possible for us to Refi? And what would we need to do? Thanks.

  8. Robert Freedman

    Thanks for your note. If your mortgage is federally backed through FHA, Fannie Mae, or Freddie Mac, you might be eligible for refinancing through the federal Home Affordable Modification Program (HAMP). Go to HMPadmin.com, which is the HAMP site, and familiarize yourself with the eligibility requirements and the process. If you’re not sure whether your loan in backed by FHA, Fannie Mae, or Freddie Mac, you can ask the lender that originated it or that’s servicing your payments each month.

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