Biden administration reduces mortgage insurance fees for 850,000 homeowners

US mortgage rates doubled in the past year, pushing more Americans away from their dream of owning a home. Prospective homeowners face elevated interest rates, low inventory, and general economic uncertainty. Recently, the Biden administration introduced a new measure in an effort to address the housing affordability crisis in the United States. 

The Federal Housing Administration will reduce the annual mortgage insurance fee from 0.85 percent to 0.55 percent for most new borrowers. This drop will help an estimated 850,000 homebuyers to save an average of $800 on mortgage insurance costs in 2023. The new measure will take effect on March 20 and reduce housing costs for low- and middle-income and first-time buyers.

“For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth-building and home ownership,” said HUD Secretary Marcia L. Fudge. “Today, we are building on the steps we’ve taken to make homeownership more affordable, and HUD is acting to ensure people feel comfortable purchasing a home as they build toward their future.”

Since 1934, the FHA has insured mortgages from private lenders, encouraging them to issue loans to a wider group of prospective homebuyers. The FHA-insured loans have a smaller downpayment and lower credit score requirements that might be beneficial to first-time buyers. In return, borrowers must pay mortgage insurance to protect the lender. In the third quarter of 2022, FHA-insured mortgages accounted for 7.5 percent of all home sales.

Over the past few years, FHA’s mortgage insurance fund has acquired enough reserves to make this reduction in mortgage insurance costs possible. According to the statement released by the White House, FHA’s mortgage insurance fund has accumulated reserves at a level that is more than five times the required threshold set by Congress. The decision to lower mortgage insurance fees received support from the National Association of Realtors.

“Mortgage rates have doubled over the past year, and home prices have increased more than 30 percent in some counties,” said NAR President Kenny Parcell. “In this competitive market, new and low- to moderate-income buyers are often left behind. This reduction will help alleviate some of the financial stress those potential buyers encounter when purchasing a home and allow more people across the country to achieve the American Dream of homeownership."

Resources:

“FACT SHEET: BIDEN-HARRIS ADMINISTRATION ANNOUNCES ACTION TO SAVE HOMEBUYERS AND HOMEOWNERS $800 PER YEAR,” (The White House, 2023)

“US to Cut Mortgage Insurance Costs for Some New Homeowners,” by Jennifer Jacobs (Bloomberg, 2023)

“Biden Administration to Cut Mortgage ​​Insurance Costs for Lower-Income Buyers,” by Andrew Ackerman and Tarini Parti (The Wall Street Journal, 2023)

“Biden admin cuts some mortgage fees amid housing affordability crisis,” by Anna Bahney (CNN, 2023)

“What To Know About Biden's Plan To Help 850,000 Homeowners Save An Average $800 In Mortgage Costs This Year,” by Anthony Tellez (Forbes, 2023)

“NAR Supports Newly Announced Reduction of MIPs,” (NAR, 2023)