FHA Announces a Reduction in Rate for Mortgage Insurance

Moving toward a more aggressive housing policy, the Clinton Administration on Thursday announced a reduction in FHA mortgage-insurance premiums that should enable hundreds of thousands of additional families to become first-time home buyers.

The mortgage insurance premium, now 3% of the loan amount, will be cut to 2.25%, providing savings of $750 on a $100,000 mortgage over the life of the loan.

Federal Housing Administration loans are typically purchased by lower-income home buyers who have trouble qualifying for regular financing. Typically, they put down 3% to 5% of the price of the home, compared to as much as a 20% down payment under regular financing. The FHA insures the loan, so the mortgage is paid if the owner goes into default.

“If we are to rekindle the dream of homeownership, we can no longer be spectators,” Assistant Secretary for Housing Nicolas P. Retsinas told a news conference.

On a nationwide basis, as many as 270,000 more families, including 63,000 from the West Coast, would qualify to get home mortgages, according to an estimate by John Tuccillo, chief economist at the National Assn. of Realtors.

Community groups welcomed the FHA announcement, but said it was more significant as a symbol of the new policy direction by the Administration than in its direct effect.

“It’s refreshing that there is recognition that the FHA has been lagging the conventional market, and these are steps on the road to improvement,” said Deepak Bhargava, legislative director for ACORN, an organization of community activist groups.

Over the past decade, he said, regular lenders had become more flexible than the FHA in providing insured mortgage loans to low-income people and minority consumers.

Now, the FHA is trying to take a leadership role again, he said, noting: “This is not a revolution, but it will help.”

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The cost of mortgage insurance “has been as a serious impediment to low income families trying to get a first home, and lowering the rate is a positive step,” said Alan Fisher, executive director of the California Reinvestment Committee, which includes 120 organizations active in issues involving affordable housing and fair lending.

“From our point of view, this should be helpful in rural California,” Fisher said from his headquarters in San Francisco. “But in metropolitan California, however, much as the dream may exist, people can’t afford homes, period.”

Special attention is needed to encourage apartment construction to provide affordable housing in metropolitan areas, Fisher said.