Vice President Kamala Harris arrives to deliver remarks Wednesday at Bowie State University in Bowie, Md. Harris applauded the U.S. Department of Housing and Urban Development's announcement that it will cut its annual mortgage insurance premiums to save the average family about $800 a year. Photo by Sarah Silbiger/UPI | License Photo
Feb. 22 (UPI) -- Calling home ownership "an essential part of the American dream," Vice President Kamala Harris applauded Wednesday's U.S. Department of Housing and Urban Development's announcement that it will cut annual mortgage insurance premiums.
Saying the move will save the average family about $800 a year, the vice president traveled to Bowie State University in Maryland, where she spoke about the new FHA loans and how she said they will make housing more affordable for low- to medium-income Americans.
"Home ownership is an essential part of the American dream," Harris said. "It is so much bigger than a piece of property. For so many people, a home is more than simply a house. A home represents financial security, an opportunity to build wealth and equity that can help put your child through college, afford retirement.
"That is why today I am proud to announce that, starting on March 20th, we are reducing mortgage insurance payments for all new FHA homeowners by nearly 40%," Harris said.
According to HUD, the premium for an FHA-insured mortgage is being cut 30 percentage points, from the current 0.85%, to 0.55% for most homebuyers. Buyers pay the premium on top of interest rates and monthly principal amounts, in order to obtain the insured mortgages.
"What this means is that on average homeowners will pay at least $800 a year less on their mortgage. And that's $800 more in your pocket for household expenses," Harris said.
The reduction in premiums comes through the department's Federal Housing Administration and is expected to translate to savings above and beyond the $800 amount for those with higher loan amounts.
"We expect that with this new approach, more than 850,000 Americans a year will benefit from this discount. Many will be first-time homebuyers," Harris said. "We know that when we increase homeownership, it strengthens communities and it strengthens our economy."
"FHA loans were created to help lower-income families buy homes. And the way that it works is by insuring those loans against default. We realized after talking to folks, it's time for an upgrade. We realized that the monthly cost of an FHA loan is still too high," Harris said as she applauded the Department of Housing and Urban Development.
"The incredible work that the Department of Housing and Urban Development, the work they have been doing to expand access to housing on a number of levels, including expanding access to counseling to help people know how to be on a track to actually get a home and keep a home," she said.
"The work is about making sure that more Americans have and can receive trustworthy advice on how to buy a home, how to lower their rent and plan their financial future," Harris added.
"In total, this action will help low- and moderate-income Americans save an estimated $600 million in the next year alone, and many billions over the next decade," HUD said in a statement Wednesday.
Using 2022 fourth quarter median home price of $467,700, the average individual homebuyer would save more than $1,400 a year in fees. FHA-insured mortgages accounted for 7.5% of home sales in the third quarter of last year, according to the White House.
Last month, mortgage broker Fannie Mae said it expects affordability to remain the top challenge for potential homebuyers through 2023.
"For this country to truly succeed, all Americans must have access to opportunity. That means expanding access to wealth-building and homeownership," HUD Secretary Marcia Fudge said in a statement.
"Today, we are building on the steps we've taken to make homeownership more affordable, and HUD is acting to ensure people feel comfortable purchasing a home as they build toward their future. As we reduce housing costs for people with FHA mortgages, we continue our work to address longstanding disparities in homeownership."
Reducing the interest rates is possible because the FHA has accumulated more than the necessary reserves to digest the cuts.
"Over the last several years, FHA's mortgage insurance fund has accumulated reserves at a level that is more than five times the required threshold set by Congress," the White House said in a statement.
"This was made possible by HUD's responsible and responsive management policies, home price appreciation, and significant refinance volume which together have led to an accumulation of substantial reserves."