Keeping FHA Financially Viable

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The Department of Housing and Urban Development (HUD) and the Federal Housing Adminstration (FHA) recently announced that the annual mortgage insurance premium paid by FHA mortgage borrowers would increase a quarter point (.25%).  Rightfully so, many people are upset - this will surely lead to a slight increase in the amount of money it costs to obtain a loan.   But compared to the alternative (higher down payments, higher closing costs, more restrictive income requirements, lower caps on eligible home values, etc..), I actually think this was a fair move.

FHA has been instrumental in providing loans to lower income borrowers who could never afford a 20% downpayment.  In the past 4 years, since the meltdown of the mortgage industry and the collapse of the housing market, FHA has buoyed a highly unstable market.  It has also allowed first time home buyers to take advantage of drastically reduced property/home values and the Federal First Time Home Buyer Tax Credit.  I think the decision was made for two reasons:  The first was to ensure that FHA remained financially viable into the future.  The second, I'm sure, was to start easing some of the risk of mortgage lending back into the private sector.

I'm not going to wade too far into the technicalities of obtaining a loan or the precise economic effects of this particular decision by FHA, but I think the big point here is that FHA will remain financially viable in the near-to-mid term, and it also keep open a window of opportunity for potential home buyers everywhere.  Like everything in life, the decision is relative and must be compared to the alternatives.  In this instance, I think they made a decent choice.