November 10, 2000
San Francisco U.S. Housing and Urban Development Secretary Andrew Cuomo released the details of a plan that will save more than one million homeowners with Federal Housing Administration-insured mortgages in excess of $1 billion annually in insurance costs.
Cuomo said that the FHA's Homebuyer Savings Plan will reduce up-front insurance premiums by one-third, eliminate annual premiums after a homeowner has built 22 percent equity in the home, and pay premium refunds to current FHA borrowers. Cuomo made the announcement to an estimated 6,000 attendees of the 87th Annual Mortgage Bankers Association Convention in San Francisco.
"After four years of reforming FHA, today we are putting the fruits of our success to work for American families," Cuomo said. "The Homebuyer Savings Plan will lower the cost of homeownership and help families take a giant step toward sharing in the American dream."
Effective on FHA loans closed on or after Jan. 1, 2001, the Homebuyer Savings Plan will reduce the premium requirement from 2.25 percent of the original loan amount. As a result, a family with a typical $100,000 FHA-backed mortgage will save $750; for larger mortgages the initial savings maybe as much as $1,650.
Cuomo also announced that the Plan will eliminate entirely FHA's annual premium of .5 percent (or 50 basis points) on all loans once homeowners build 22 percent equity in their home. Modeled after private mortgage insurance (PMI) cancellation legislation passed by Congress in 1998, this premium reform will further reduce the cost of FHA mortgage insurance. Unlike the PMI legislation, however, FHA will continue to enhance consumer protection by insuring the mortgage even after the annual premium payments are eliminated.
These two parts of the plan will save the typical FHA consumer an average of $1,500 over the life of a $100,000 loan.
Under the third part of the Plan, current FHA borrowers will receive a refund on premiums paid when they sell their home or refinance their loan. Approximately 200,000 borrowers will be eligible for this refund in the first year.
Earlier this year, the accounting firm of Deloitte & Touche concluded that the FHA's Mutual Mortgage Insurance Fund held its strongest financial position since it was created in 1934, with a record economic value of $16.6 billion. They also found the FHA insurance fund made an extraordinary recovery from just a decade ago when it had a negative economic value of $2.7 billion.
"We will not spend one penny of FHA's $16 billion in reserves to pay for this premium cut," Cuomo said. "After implementing the Plan we estimate that the economic value of FHA's insurance fund will grow to $34 billion by 2006."
Last week, President Clinton and Cuomo announced that the percent of Americans who own their own home hit a record high 67.5 percent set in 1995. There are now 71.6 million U.S. homeowners. In addition to the historic national homeownership rate, all-time high rates were set for minorities (48.2 percent), Hispanics (46.7 percent), central city residents (51.9 percent), households headed by females (53.3 percent), households earning less than the median family income for the quarter (52.2 percent), and married couples younger than 35 (61.0 percent).
"Last week we reached a record 67.7 percent home-ownership rate in America," Cuomo said, "But we cannot rest until we erase the gap in minority homeownership. With FHA's Homebuyer Savings Plan, we are lowering the cost of buying a home, and fueling further growth in homeownership." More than 80 percent of all FHA loans go to first-time homebuyers, and more than 40 percent to minority households. Last year, FHA insured nearly 1.3 million home loans with a combined value of approximately $125 billion.
The FHA, an agency within HUD, is entirely financially self-sufficient, with revenues from insurance premiums and sales of property paying the cost of all insurance claims and operations.
Since its inception, FHA has helped 30 million families realize the dream of homeowner-ship. Because FHA mortgage insurance protects lenders from losses, many more families who would otherwise not qualify for private mortgage insurance are able to qualify for a home loan.