FHA to raise mortgage insurance premiums

WASHINGTON (Reuters) - Homeowners who turn to the federal government for help with their monthly mortgage payments will pay more for assistance under a policy meant to protect Washington from the costs of failing loans.

The Federal Housing Administration will increase the cost of its mortgage insurance by 25 basis points to 1.75 percent of the total loan amount. That amounts to a $500 up-front charge on a mortgage of $200,000.

The FHA had conceived a fine-tuned premium system that would consider many risk factors in setting premiums, but that idea was shelved under sweeping housing reform legislation passed last month.

The legislation ordered the FHA to continue to apply a flat insurance rate at least through October 2009, and the government agency decided to increase premiums as it takes on a larger share of the mortgage market.

More and more borrowers have turned to the FHA in recent months as Wall Street has turned its back on the mortgage market.

The FHA is expected to soon refinance thousands of troubled borrowers under a foreclosure-prevention program that is a cornerstone of the just-passed federal housing legislation.

(Reporting by Patrick Rucker; Editing by Leslie Adler)