In the future, even with excellent credit it’s going to cost you more to get a mortgage – at least if you are looking for the prime terms provided by many FHA loans. Yesterday the FHA announced that it will increase annual mortgage insurance premiums by 0.25 percentage points on 30- and 15-year loans. Upfront premiums will hold steady at one percent for now[1]. The new premiums will go into effect on all new loans insured on or after April 18, 2011, but existing and reverse mortgage loans will not be affected. According to David Sterns, FHA’s commissioner, borrowers’ costs will likely rise about 30 dollars per month. He called the move “a responsible step towards meeting the congressionally mandated two percent reserve threshold while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”

The FHA believes that the new fees alone will generate about $3 billion a year for its reserve fund[2]. Given that at the end of 2010 the entire fund was hovering a little over $3.5 billion, this could be a game-changer for the FHA, which has faced harsh criticism for not maintaining adequate reserves for the loans it guarantees. FHA officials blame losses on “rotten loans,” but agree that the “rainy day fund” must rise from 0.5 percent (right after the market crashed) back to the government-mandated two percent.

According to MortgageLoan.com, the new fees will mean that “FHA borrowers will be paying about twice as much for mortgage insurance on a 30-year loan as than they would pay for private mortgage insurance on a non-FHA mortgage.”

Do you think that this is a good solution for the FHA?

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[1] http://www.dsnews.com/articles/fha-raises-annual-mortgage-insurance-premiums-2011-02-15

[2] http://www.foxbusiness.com/markets/2011/02/16/fha-hikes-mortgage-fees/