As part of an effort to expand homeownership among entry-level buyers, President Barack Obama will announce a cut in Federal Housing Administration mortgage-insurance premiums during a speech in Phoenix on Jan. 8, according to three people with direct knowledge of his plans.
The annual fees the agency charges to guarantee mortgages will be cut by 0.5 percentage points, said two of the people, who asked not to be identified because the White House hasn’t yet made the announcement.
The FHA has been increasing premiums since 2011 to offset losses caused by defaults on mortgages it backed after the housing bubble burst. Housing industry participants have said the increases in annual fees, which are now at 1.35 percent of the loan balance, are squeezing first-time homebuyers out of the market. The annual fees were just 0.55 percent in 2011, before the increases.
The FHA’s insurance fund, which required a $1.7 billion draw from the Treasury Department last year, posted its first positive balance in two years for fiscal year 2014.
The agency is required to keep enough cash on hand to cover all projected losses in its $1.1 trillion portfolio. The fund must also maintain a cushion of 2 percent of its value, a level it isn’t projected to reach until fiscal 2016.
Private mortgage insurers, which compete with the government program, slumped on the news. Philadelphia-based Radian Group Inc. dropped 3.2 percent to $16.01 at 9:57 a.m. in New York. MGIC Investment Corp. fell 2.3 percent, and Essent Group Ltd. declined 2.7 percent.
Radian climbed 18 percent last year after more than doubling in both 2012 and 2013 and had said it benefited as private companies gained market share from the government.
–With assistance from Zachary Tracer in New York.