House Passes Bill Giving FHA Ability to Raise Insurance Premiums

The House passed legislation to give the Federal Housing Administration (FHA) flexibility to raise mortgage insurance premiums on the loans it guarantees on Friday.

In July, the House passed a broader bill doing the same but it remains stalled in the Senate.  The bill passed on Friday is a much narrower version and has a better chance to move quickly through the Senate.

Sponsored by House Financial Services Chairman Barney Frank, the bill gives FHA the authority to raise the mortgage insurance premiums charged for both forward and reverse mortgage loans.  Frank said the bill is part of a bipartisan effort to “make sure that the FHA is both an effective and efficient means for housing finance.”

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The agency said it plans to raise annual premiums from 0.55% up to 1.55% for “forward” loans and from 0.50% to 1.25% for HECM loans.

The bill would also give the Housing and Urban Development the ability to adjust the premiums for a two reverse mortgage product approach outlined by Colin Cushman, Director of Portfolio Analysis at HUD earlier this year during a conference in Washington, DC.

The proposal includes the current HECM product with higher annual premiums and the “HECM Lite” would provide borrowers with less in proceeds but without an upfront premium.  Designed to be a pay as you go product, Cushman said it would help lower the risk to the FHA insurance fund and offer borrowers an additional option not currently available.

Frank’s bill also requires the assistant secretary of Housing and Urban Development to testify before Congress within 270 days of enactment of the bill to discuss the finances of the FHA.

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  • It has been estimated that to put the HECM program to the place it was in terms of principal limit factors (“PLFs”) and ongoing mortgage insurance premiums (“MIP”) based on the initial budget subsidy estimates for FY 2011 would require a positive credit subsidy of $1.7 billion. Broken down using the assumption that the continuation of the 10% reduction to PLFs is the same as last fiscal year, $798 million, the remaining $900 million seems to be divided into $250 million for a direct subsidy and $650 million tied to the increase the ongoing MIP from 0.5% to 1.25%.

    If the estimates above are even close to the breakdowns being used by OMB and HUD, then the most important legislative piece to the HECM program this fiscal year is this legislation. Without this piece expect PLFs to fall drastically. This provision should not be nearly as controversial as the appropriation since this piece is a cost to the borrower, not the government.

  • It has been estimated that to put the HECM program to the place it was in terms of principal limit factors (u201cPLFsu201d) and ongoing mortgage insurance premiums (u201cMIPu201d) based on the initial budget subsidy estimates for FY 2011 would require a positive credit subsidy of $1.7 billion. Broken down using the assumption that the continuation of the 10% reduction to PLFs is the same as last fiscal year, $798 million, the remaining $900 million seems to be divided into $250 million for a direct subsidy and $650 million tied to the increase the ongoing MIP from 0.5% to 1.25%.rnrnIf the estimates above are even close to the breakdowns being used by OMB and HUD, then the most important legislative piece to the HECM program this fiscal year is this legislation. Without this piece expect PLFs to fall drastically. This provision should not be nearly as controversial as the appropriation since this piece is a cost to the borrower, not the government.rn

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