Interest Rates Rise, Pricing Adjustments Rise and Now FHA Premiums Will Rise Too

The Department of Housing and Urban Development is planning to increase annual premiums for FHA-insured loans by 25 basis points in April.

The Federal Housing Administration premium increase is contained in the President's budget proposal for fiscal year 2012, which will be unveiled Monday morning.

HUD secretary Shaun Donovan revealed the FHA increase Friday morning in discussing the release of the Treasury Department's plan for winding down Fannie Mae and Freddie Mac and restructuring the housing finance system.

The 25 bp increase will raise the annual premium to 115 basis points on FHA-insured single-family loans with loan-to-value ratios greater the 95%.

Secretary Donovan noted that FHA has the authority to raise the premium and does not have to wait for Congress to approve it.

As part of the housing finance reform proposal, the Obama administration supports allowing the $729,750 loan limit on GSE and FHA loans in high cost areas to expire on Oct. 1 and drop down to $625,500.