FHA cuts MIP by 30 bps, mortgage industry cheers

FHA cuts MIP by 30 bps, mortgage industry cheers

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The Federal Housing Administration (FHA) on Wednesday morning announced a 30 basis point reduction in the annual premium charged to mortgage borrowers. The cut, widely anticipated by the industry, will result in mortgage insurance premiums (MIP) of 55 bps for most borrowers, down from 85.

In a statement released Wednesday, the White House said the MIP cut will reduce housing costs by an average of $800 for roughly 850,000 homebuyers and homeowners in 2023.

Housing and Urban Development (HUD) Secretary Marcia Fudge will make the official announcement with Vice President Kamala Harris Wednesday afternoon at Bowie State University in Maryland.

Mortgage trade groups, which have been lobbying for an MIP cut for several years to reduce housing costs, celebrated the move.

“The lower premiums will expand homeownership opportunities by lowering mortgage payments for qualified FHA borrowers, providing critical relief from the steep rise in mortgage rates and home prices just in time for the spring buying season,” the Mortgage Bankers Association said in a statement Wednesday. “This will especially help minority homebuyers and low-and moderate-income households who are predominantly served by FHA loans.” 

Scott Olson, the executive director of Community Home Lenders Association, which represents smaller mortgage lenders, commended the Biden administration for the cut to premiums.

“Long a top CHLA priority, an FHA premium cut is critically needed to insure minorities and other underserved borrowers have affordable access to mortgage credit, in a period of rising mortgage rates and unprecedented homeownership affordability challenges,” he said in a statement.

Some mortgage analysts, however, say the premium cut – the first since the Obama administration made a 50 bps cut in January 2015 – won’t have a big impact on the mortgage market.

“We believe that a cut of that size will have very limited impact in terms of moving share from the MIs to the FHA,” Bose George, an analyst at Keefe Bruyette Woods wrote in a note Tuesday night ahead of the expected announcement. “Further, in October 2022, the Federal Housing Finance Agency (FHFA) had announced cuts to GSE fees to higher risk borrowers (known as LLPAs), which would have likely shifted some volume from the FHA to the MIs. This FHA premium cut will likely just offset the impact of those LLPA cuts and result in market share staying fairly stable.”

In November, the FHA’s Mutual Mortgage Insurance Fund reported a capital ratio of 11.11%, far above the statuatory minimum of 2.0%.

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