Biden Administration Lowers Premiums on FHA-Insured Mortgages

Attempt to counter higher borrowing costs drops premiums by about a third

A mother plays with her son in their new home.

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The Biden administration announced Wednesday it will reduce premiums on federally insured mortgages by about a third in a move it estimates will save U.S. homeowners $680 million this year.

The Federal Housing Administration said it will reduce the annual premium on mortgages it insures to 0.55% from 0.85%. The agency said the cut will yield an average of $800 in savings for an estimated 850,000 homebuyers and homeowners.

The premium reduction comes almost a year after the Federal Reserve began steadily raising interest rates to fight the highest U.S. inflation in four decades.

The Fed's rate hikes have raised borrowing costs for homebuyers and those seeking home equity loans. That, in turn, has cooled the housing market while triggering criticism of Biden for his perceived indifference to the plight of prospective homebuyers and homeowners.

The average 30-year fixed mortgage rate has more than doubled to 6.32% annually from 2.77% when Biden took office in January 2021.

As rates have risen, home prices have slid. The U.S. housing market has lost about $2.3 trillion in value since prices peaked in the middle of last year, with the 5% drop in the last six months of 2022 marking the largest decline since the housing-induced global financial crisis of 2008-09.

In addition, the National Association of Realtors this week reported home sales fell for the 12th consecutive month in January, with transactions plunging 37% from the same month a year ago.

FHA and the Home Loan Market

Mortgages financed through the FHA accounted for just 7.5% of all new home sales in the third quarter of 2022, the most recent quarter for available data. That's the lowest proportion since the fourth quarter of 2007, just prior to the financial crisis, and down from 20% at the start of the pandemic.

The administration noted that more than 80% of FHA home loans go to first-time home buyers whose homes cost about half the median U.S. price, which equaled $467,700 in the fourth quarter. The average mortgage amount of an FHA loan totals about $270,000.

A White House news release stated that the announcement "is an important step in making homeownership more attainable," particularly for low- and middle-income borrowers.

On top of the premium reduction, which will take effect March 20, the administration previously changed FHA's underwriting policies to make it easier for first-time homebuyers to qualify for agency-issued loans.

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  2. Federal Reserve Economic Data. "30-Year Fixed Rate Mortgage Average in the United States."

  3. Business Insider. "The US housing market has lost $2.3 trillion in value from its peak as home prices tumble."

  4. National Association of Realtors. "Existing-Home Sales Descended 0.7% in January."

  5. National Association of Home Builders' Eye on Housing. "All-Cash New Home Sales Outnumber FHA-Backed for the First Time Since 2007."

  6. Federal Reserve Economic Data. "Median Sales Price of Houses Sold for the United States."