The Federal Housing Administration (FHA) has announced its plan to make mortgage insurance premiums more affordable. The agency's policies are designed to protect mortgage providers in the event that a borrower defaults on a loan. Currently, the premiums stand at 1.35 percent of a loan's value, which will fall to about 0.85 percent, according to CNN Money.
The plan is designed to loosen lending practices among mortgage providers, who critics of the 1.35 percent figure say are disinclined to extend loans due to the high cost of premiums. Current rates were established to stabilize the FHA following the financial meltdown and foreclosure crisis. Since then, the American housing market has entered recovery, with foreclosures at the lowest rate since 2006 and improved job figures across the country. Now, the FHA has determined, is the time to restore incentives to lend.
The FHA also recently announced that it would not need another bailout, with the reserve of funds to grow from about $3 billion to $10 billion annually.
"Too many creditworthy families who can afford, and want to purchase, a home are shut out of homeownership opportunities due to today's tight lending market," the White House said in a statement.
For homeowners' insurance companies, the shift could lead to more homeowners seeking policies. The economic goal of the revision is for potential buyers who were on the cusp of acquiring loans to cross into acceptable territory, and may cause a bump in mortgage deals.
For a wider range of applicants who are approved for mortgages, the real estate insurance industry will provide homeowners' solutions to protect assets that were so hard-won through tough economic conditions. On the other side of a housing crisis, the FHA's announcement marks the next step in economic recovery.