Housing stocks

Homebuilders jump, mortgage insurers fall on buzz of FHA rate cut

President Barack Obama is on track to reduce mortgage-insurance premiums charged by a government agency, as part of a move to expand homeownership among lower-income buyers.

The Federal Housing Administration will cut the annual mortgage insurance premiums by 0.5 percentage point, to 0.85 percent of the loan balance from 1.35 percent, Julian Castro, secretary of the Department of Housing and Urban Development, told media in a conference call Wednesday. FHA predicts that the new premium structure, which President Barack Obama was going to discuss in a speech during a visit to Phoenix on Thursday, will provide 2 million borrowers an opportunity to save an average of $900 annually over the next three years if they purchase or refinance homes.

“We believe this is striking a very good balance between being fiscally responsible and also enhancing homeownership opportunities,” Castro said.

The Federal Housing Administration mortgage insurance premiums have been rising since 2011 with an aim to offset losses caused by defaults on mortgages it backed after a major housing bubble burst. Many housing industry participants felt the changes in annual fees, which currently stands at 1.35 percent, are squeezing buyers with modest incomes out of the market.

“Lots of people have been locked out of the market, particularly lower-wealth borrowers and borrowers of color, by the high prices at FHA,” said Julia Gordon, director of housing finance and policy at the Center for American Progress, a group affiliated with Democrats. The premium decline “does put homeownership within the reach of more people.”

The FHA is hopeful that 250,000 first-time homebuyers will be attracted toward the market after the premium cuts.

The FHA charges borrowers an upfront fee in addition to its annual premiums. The FHA’s current upfront mortgage insurance premium (UFMIP) is 1.75 percent of the loan balance but that is not slated to change.

In December, Government-controlled mortgage finance firms Fannie Mae and Freddie Mac introduced programs to allow down payments as low as 3 percent of a property’s value.

“If you want to call it a tennis match between Fannie and the FHA, they just returned Fannie’s serve,” said Chris Freemott, an executive at Midwest Equity Mortgage in Oak Brook, Illinois.

The White House said it also will be increasing efforts over the coming months to “cut red tape and clarify lending standards” to make mortgages cheaper and more accessible to creditworthy low-income and moderate-income families.

Homebuilder stocks were among the biggest gainers on Wednesday, with PulteGroup Inc and Lennar Corp each closing the day up 4.9 percent on hopes of more possible homebuyers.

On the other hand, mortgage insurers Radian Group Inc., MGIC Investment Corp. and Essent Group Ltd. all declined as the move will increase competition for mortgage insurance.

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