FHA to Cut Mortgage Insurance Premium
The Federal Housing Administration will trim the mortgage insurance premium it charges first-time home buyers by a quarter of a percentage point, saving consumers about $200 in closing costs, officials said Thursday.
The housing program, which will affect as many as 100,000 first-time home buyers, will cost the FHA about $20 million a year, officials said. But the government-owned mortgage insurer, a unit of the U.S. Department of Housing and Urban Development, has a capital surplus because of the nation’s healthy housing market and officials believed that it could rebate some of its profits without endangering its finances.
As is customary when the government has good news to dispense in an election year, the announcement was made by the president in an elaborate White House ceremony.
Earlier in the week, President Clinton offered another election-year financial break to the middle class--a $1,500 tuition tax credit for the first two years of college.
“It’s been American dream week--college educations and homeownership,” said White House spokesman Mike McCurry.
Clinton, addressing a White House-sponsored “Home Ownership Summit,” noted that many middle-class families have their life savings tied up in their homes. He said that his goal is to do “anything we can to facilitate people buying their own homes and to speed the process along.”
The campaign of Clinton’s likely fall opponent, outgoing Republican Sen. Bob Dole of Kansas, ridiculed the closing-cost cut as “chump change” and an election-year gimmick.
Nelson Warfield, Dole’s chief spokesman, said that the $200 rebate is insignificant “compared to how much [Clinton] has raised costs on all home buyers this year by refusing to sign a balanced budget.”
Warfield noted that mortgage interest rates have risen a full percentage point since negotiations on a balanced budget collapsed in January. Bankers estimate that balancing the federal budget would lower interest rates by at least a percentage point, reducing annual mortgage payments by hundreds of dollars.
Clinton responded that Republicans had “walked away” from budget talks earlier this year.
The president also said that 3.7 million American families had become homeowners since he took office because of his administration’s housing policies as well as strong job growth and relatively low interest rates.
Housing and Urban Development Secretary Henry G. Cisneros said that Thursday’s announcement was the culmination of a yearlong effort to wring $1,000 from the $4,400 upfront costs of buying an average home.
Cisneros said that an earlier reduction in FHA insurance premiums had cut closing costs by $600 and that a shortening of the time involved in securing a home loan was worth another $200.
Last year, the FHA, which insures mortgage lenders against borrower default, cut the rate it charges to 2.25% from 3%. On Thursday, the FHA announced a further 0.25% cut in the insurance rate, to 2%.
Cisneros said that the time required to close on a loan has been shortened from six weeks to as little as two days, saving consumers an estimated $200 because “time is money,” he said.
Many of the beneficiaries of these cost reductions would have bought homes anyway, Cisneros acknowledged. He could provide no estimate of how many people became homeowners because of the government rebates.
