1.How FHA’s Life-of-Loan Requirement Works

The FHA introduced the life-of-loan mortgage insurance rule in 2013 to strengthen the Mutual Mortgage Insurance Fund (MMI Fund) following the financial crisis. The rule requires borrowers to pay FHA mortgage insurance premiums (MIP) for the entire life of the loan, regardless of how much equity they build.

While this change improved the fund’s financial health, it also increased long-term borrower costs and made FHA loans less competitive when compared to conventional loans with private mortgage insurance (PMI). Under PMI rules, insurance is automatically canceled when the loan-to-value (LTV) ratio reaches 78%, or may be requested for removal once the borrower reaches 80% LTV, provided they have a good payment history.

2.Recent FHA Premium Changes

In 2023, the FHA lowered its annual MIP by 30 basis points, reducing the premium from 0.85% to 0.55% for borrowers with an LTV greater than 95%, and from 0.80% to 0.50% for borrowers below 95% LTV on 30-year loans within the standard base loan amount of $726,200. Similar reductions were applied across most Title II FHA loans.

While this reduction provided some relief to borrowers, the life-of-loan requirement continued to result in higher lifetime costs compared to conventional loans. It also made FHA loans more easily identifiable as higher-cost or subprime in certain disclosures, due to elevated APRs created by ongoing MI payments.

3.What the Mortgage Insurance Freedom Act Would Do

The Mortgage Insurance Freedom Act seeks to permanently end FHA’s life-of-loan MIP requirement. Under the bill, FHA would be required to terminate mortgage insurance once the borrower’s LTV reaches 78%, mirroring the Homeowners Protection Act standards that apply to conventional loans with private mortgage insurance.

However, the bill includes a protection clause for the FHA’s MMI Fund: if the fund’s capital ratio falls below the statutory 2% minimum reserve requirement, the FHA would be temporarily permitted to maintain or reinstate life-of-loan MI to restore financial stability.

The legislation was introduced on September 19, 2025, and referred to the House Financial Services Committee for review. Representative Meeks is a senior member of that committee, which oversees federal housing policy, lending practices, and mortgage insurance programs.

4.Potential Industry Impact

If enacted, this legislation would mark a major shift in FHA lending policy, reducing total borrower costs and bringing FHA loans into closer alignment with conventional loan structures. Eliminating lifetime MI payments could make FHA loans more appealing to first-time homebuyers and borrowers with limited down payments, while also narrowing the competitive gap between FHA and conventional products.

For lenders, the change would likely simplify disclosure requirements and reduce APR disparities, helping ensure that FHA loans are no longer disproportionately identified as higher-cost under certain compliance calculations.

5.Looking Ahead

While it’s too early to know whether the Mortgage Insurance Freedom Act will advance through committee or gain sufficient bipartisan traction, its introduction signals renewed congressional interest in modernizing FHA’s mortgage insurance framework. The bill has broad appeal among housing affordability advocates, who view it as a step toward making FHA financing more sustainable and borrower-friendly over the long term.

EASE Compliance Advisors will continue to monitor the bill’s progress and provide updates as it moves through Congress. For lenders, this is a good opportunity to review your FHA program offerings and be prepared for potential changes that could affect pricing, disclosures, and borrower qualification strategies.