FHA May Seek 75BP Annual Premium in President's Budget

The Federal Housing Administration is expected to ask for Congressional approval to raise the annual insurance premium on its loans to at least 75 basis points and perhaps higher, according to industry officials interviewed by National Mortgage News. The exact figure will be released Monday when the President's 2011 budget is unveiled. Currently, the annual premium is capped at 55 basis points. The additional money raised would be used to bolster its reserve fund which is barely in the black. Some sources think increasing the premium to 100 basis points is a possibility but likely will not happen. "They have half-a-million in delinquencies," said one insurance executive, requesting anonymity. "They are absolutely going to hike it; it's just a matter of how much." FHA recently raised the upfront mortgage insurance premium (MIP) to 2.25%, a 50 basis point increase that becomes effective this spring. The budget document likely will include FHA's estimates on how much the premium hike will rise and a timeline for restoring the fund's capital ratio back to 2%. (At last check it was at 0.53%.) The Department of Housing and Urban Development budget also will have projections for FHA loan losses and claims in the current (2010) fiscal year and FY 2011. HUD wants Congress to enhance FHA's authority to seek indemnification from lenders for loans that go bad. Mortgage bankers are anxious about the proposal because it will increase their liability and risks of doing business with the FHA.