Lower Payments

“We’re extremely concerned about why housing still isn’t picking up,” said David Stevens, president of the Mortgage Bankers Association and FHA commissioner from 2009 to 2011. “There’s no question that if there were a drop in premiums, that would give at minimum a psychological boost to Realtors, mortgage bankers, and probably a sizable number of homebuyers who are sitting on the fence.”

Annual premiums, which are generally paid every month for the life of the loan, are included when tallying borrowers’ debt-to-income ratio. A lower premium will help borrowers who had previously exceeded the 43 percent FHA limit, according to Chappelle.

FHA estimates the lower premium would translate into a $900 reduction in annual mortgage payments, assuming a balance larger than $100,000. Jay McCanless, an analyst at Sterne Agee & Leach, said the savings would be about $25 a month for balances of $100,000, and would have a negligible impact on housing demand.

Fannie Mae

Lower interest rates for FHA loans, combined with reduced premiums, means borrowers with low credit scores will be more likely to use FHA loans than Fannie Mae or Freddie Mac’s 5- percent down program, said Rich Green, a sales manager at Presidential Bank in Bethesda, Maryland. Borrowers who have scores from 620 to 659 are charged annual premiums of 1.69 percent for a $300,000 loan from the two government-controlled companies, Green said.

The mortgage companies’ new 3-percent down programs will also lose borrowers to FHA. Those with scores from 660 to 679 would pay 1.48 percent on a $300,000 loan compared with 0.85 percent through FHA, which translates into savings of $157 a month, according to Green.

While the premium cuts will help less creditworthy borrowers, they aren’t in line with the Obama administration’s goal of attracting more private capital to the mortgage market, said Michael Zimmerman, senior vice president for investor relations at MGIC Investment Corp.

Mortgage Insurers

“It is consistent with trying to expand access to credit,” Zimmerman said. “It just doesn’t seem consistent with having private capital take more risk in the mortgage sector.”