The Federal Housing Administration is reducing its annual mortgage insurance premiums by 0.5 percentage points in a move "to expand responsible lending to creditworthy borrowers," the White House said in a statement Wednesday afternoon.

FHA also said it would take added steps over the next few months to "cut red tape and clarify lending standards" in reducing mortgage costs for hundreds of thousands of creditworthy borrowers, according to the White House.

The FHA's move comes after several calls from industry trade groups, associations, and members of Congress urging the agency to lower its insurance premiums, which were increasingly blamed for sidelining thousands of would-be buyers. FHA-backed loans allow buyers to put down as little as 3.5 percent of the purchase price, and they are a major financing resource for first-time buyers.

FHA's mortgage insurance premiums will be reduced from 1.35 percent to 0.85 percent. The reduction in premiums on mortgages could save an average borrower $1,000 a year on a $200,000 loan, says Mark Zandi, chief economist at Moody's Analytics.

"We are optimistic that more affordable FHA loans will have a positive impact on first-time buyers who have been entering the market at a lower-than-normal rate," National Association of REALTORS® President Chris Polychron said in a statement. "NAR is a strong supporter of the FHA and its vital role in the mortgage marketplace for home buyers. We will continue our work with the administration to help make the dream of home ownership a reality for millions more Americans."

In 2013, the FHA required a $1.7 billion bailout from the government after suffering losses from a high number of loan defaults in the aftermath of the financial crisis. Since 2008, FHA has increased its annual premiums for FHA borrowers five times. The National Association of REALTORS® has estimated that nearly 400,000 creditworthy borrowers were priced out of the housing market in 2013 because of the higher costs in FHA insurance premiums. But in recent months, FHA has turned a profit, which has renewed calls from other groups to lower their insurance premiums to help open the credit box to more qualified borrowers.

"This action will make home ownership more affordable for over two million Americans in the next three years," says Julian Castro, secretary of the Department of Housing and Urban Development, which oversees FHA. "By bringing our premiums down, we're helping folks lift themselves up so they can open new doors of opportunity."

President Barack Obama is expected to announce more about FHA's new policy on Thursday in a speech in Phoenix. The housing policy is expected to go into effect by the end of the month.

Source: “White House Says FHA to Cut Mortgage Insurance Premiums,” Reuters (Jan. 7, 2015) and “Plan Trims Cost of Some Mortgages,” The Wall Street Journal (Jan. 7, 2015)