HUD Seeks FHA Risk-based Premiums

Homebuyers with good credit would be able to get a Federal Housing Administration insured mortgage with no upfront insurance premium under a legislation proposal the Department of Housing and Urban Development is finalizing.The legislation will allow FHA to offer risk-based premiums so that it can both serve and attract borrowers with high credit scores as well as subprime borrowers. Based on their credit score and loan-to-value ratio, creditworthy borrowers would only have to pay a 50 basis point annual insurance premium on FHA loans. For subprime borrowers, FHA could charge a maximum 3% upfront premium and a 75 bp annual premium. "This would provide an option to potential homebuyers who have no choice right now except to go to subprime lenders," HUD secretary Alphonso Jackson said. FHA is a "cheaper" and a safer option, the secretary added.