The Federal Housing Administration (FHA) is going on the record, asking for an increase in mortgage insurance premiums to replenish its diminishing capital reserves while hiking FICO scores for applicants.

Housing secretary Shaun Donovan will ask Congress Wednesday afternoon to raise the 55-basis point cap on annual government MI premiums.

Administratively, FHA officials are expected to raise the 1.75% upfront premium and prohibit those points from being rolled into the loan amount. (The agency does not need Congressional approval to raise upfront premiums.)

Even though it is hiking loan costs, U.S. Department of Housing and Urban Development will allow the upfront premium to be priced into the interest rate. It also will allow home sellers to pay the premium.

"The good news is that they are doing this administratively and taking leadership," said Brian Chappelle, a mortgage banking consultant with Potomac Partners. As the health of the mortgage insurance fund improves, FHA can reduce the premiums and other restrictions, he added.

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