FHA to Raise Premiums–Especially For Jumbos

The Federal Housing Administration will “soon” increase its annual premium on jumbo mortgages by 25 basis points, according to government budget documents released today. The increase means FHA loans with a principal balance above $625,500 will carry a 140-bp annual premium. On lower balance loans, FHA is raising the annual premium by 10 bps.

FHA currently charges a 1% upfront fee and a 115 bp annual premium on residential loans with loan-to-value ratio higher than 95%. “These [premium] increases will bolster FHA’s capital reserves, accelerating the point at which FHA will regain compliance with its capital reserve ratio,” according to the President’s Fiscal Year 2013 budget proposal. Some analysts claim the higher annual premium will reduce demand for FHA jumbos and push more borrowers to seek out private jumbo loans. Congress instructed FHA to increase its annual premium by 10 bps late last year when lawmakers passed a bill to extend a payroll tax reduction for two months. Source: National Mortgage News

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