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(TNS)—The Federal Housing Administration plans to lower its annual mortgage insurance fees by 0.5 of a percentage point—a move that it says will allow more buyers to jump into the real estate market.

“This action will make homeownership more affordable for over 2 million Americans in the next three years,” says Julián Castro, secretary of the Department of Housing and Urban Development.

According to the White House, the change will save the average borrower about $900 a year. The lowered premiums will help more than 800,000 homeowners save on their monthly mortgage costs and create up to 250,000 new home buyers, the Obama administration says.

The FHA doesn’t make its own loans, but insures mortgages made by lenders. Borrowers pay for that insurance through yearly premiums, which have risen to 1.35 percent of the loan balance, to make up for losses suffered when mortgages went bad during the housing crash. The premiums now will be lowered to 0.85 percent. While that’s higher than the 0.55 percent charged before the crash, it is expected to ease the way for many low- and moderate-income buyers who choose FHA loans because they allow for down payments as low as 3.5 percent, plus lower credit scores.

“It will make homeownership possible for a slightly expanded group of home buyers,” Keith Gumbinger, vice president at the Riverdale-based mortgage information publisher

Gumbinger says the FHA probably was responding to pressure from the National Association of Realtors and other groups that promote homeownership, as well as to an announcement last month by Fannie Mae and Freddie Mac that they will back certain mortgages requiring only a 3 percent down payment. The two mortgage finance companies require a 5 percent minimum down payment on most of the products they guarantee.

With the Fannie Mae and Freddie Mac offerings, “FHA stands to lose part of its business,” Gumbinger says. Lowering the annual insurance premiums, he says, “is a way to better compete for that group of borrowers.”

Several North Jersey real estate agents says the lower annual premiums will help buyers afford mortgages and will stimulate the market.

“A lot of buyers use FHA,” says Ron Aiosa, an agent in Butler. “It’s a great program that allows buyers to get into a home with a low down payment, but that [mortgage insurance] is a killer.” Lowering the premiums, he says, will attract more buyers to FHA loans.

“I have worked with many first-time buyers, particularly below the $400,000 price range, who utilize FHA loans since they don’t have the sufficient down payment, too much debt, or credit issues to obtain a conventional loan,” says Wendy Dessanti, a Weichert agent in Tenafly. “The reduced premium will encourage these types of buyers to buy, and will also help them to qualify for the loan.”

Marc Stein of Links Residential Real Estate in Teaneck, however, says that the annual savings won’t be significant enough to make a difference in most households’ ability to buy. “It won’t have that much of an effect on the market,” he says.

The news of the less-expensive FHA financing gave a bounce to home builders’ stock on Wednesday. Shares of Red Bank-based Hovnanian Enterprises Inc. rose 2.8 percent to close at $3.97, and the shares of the other publicly traded homebuilders also rose.

©2015 The Record (Hackensack, N.J.)
Distributed by Tribune Content Agency, LLC