White House

Obama to reduce FHA mortgage premium rate to spur buying

First-time homebuyers whose home loans are guaranteed by the Federal Housing Administration would benefit from an Obama administration move to lower mortgage insurance premiums.

Under the plan, the housing administration will reduce annual mortgage insurance premiums by 0.5 percentage points, to 0.85 percent. The White House said Wednesday the reduction means new home buyers would pay $900 less a year than they would without the change.

The rate drop announcement will be a centerpiece of President Barack Obama's trip to Phoenix Thursday.

Current homeowners who refinance into an FHA mortgage would also benefit from the change.

Even with the reduction, the new 0.85 percent premium is higher than historic norms. The rate was initially increased to raise FHA capital reserves which took a hit during the housing crisis.