FHA Raises Its Premiums to Insure Repayment of Mortgages

Wall Street Journal (08/27/08) P. A11; Hagerty, James R.
Effective Oct. 1, upfront charges imposed on most FHA borrowers will climb to 1.75 percent of the mortgage amount from 1.5 percent prior to implementation of the agency's new risk-based pricing system that bases fees on credit scores, down-payment amounts and equity levels. The FHA is holding annual premiums steady, however, at 0.50 percent to 0.55 percent. With investors increasingly avoiding mortgages not backed by the FHA, Fannie Mae or Freddie Mac and the government-sponsored enterprises becoming more selective about which loans to buy or guarantee, Inside Mortgage Finance reports a jump in FHA-insured mortgages to 23 percent of all home loans last month from 1.8 percent two years ago; the publication predicts that the figure could hit 30 percent by the end of 2008. While the FHA reports $19 billion in reserves, rising defaults have generated concerns that the agency might need money from the government to cover losses.