Mortgage Trade Group Pushes for FHA Insurance Premium Reduction

A mortgage industry trade group wants the Federal Housing Administration (FHA) to reduce the annual mortgage insurance premium it charges to borrowers. 

The Community Home Lenders Association (CHLA) Tuesday proposed that FHA reduce the annual premium from the current 1.35% to 0.75% and to 0.5% for borrowers who successfully complete a counseling session pre-approved by the Department of Housing and Urban Development (HUD). 

CHLA noted that in FY 2014, the FHA is projected to net approximately $13 billion, or 7.25% on every new loan. 


To partially offset the revenue reduction that would result from the decrease in the annual premium, CHLA suggests that FHA increase its upfront premium from its current 2% to as much as 3%. 

Scott Olson, executive director of CHLA, sent a letter to Office of Management and Budget Director Sylvia Matthews Burwell, expressing concern that the current FHA premiums are too high and push affordability out of reach for homebuyers.

“We are concerned that FHA’s excessive levels of premium—particularly the 1.35% amount charged annually on a loan—risks making home purchase for many homebuyers affordable,” Olson wrote.

The group also proposed that as FHA’s financial status improved to meet its 2% reserve requirement for its Mutual Mortgage Insurance (MMI) fund, then the annual premium should be reduced to 0.5% for all borrowers. 

“We fully understand the need for the fund to be on firm financial footing,” Olsen said in a statement. “However, we believe that goal can and should be achieved in a balanced approach that is true to FHA’s core mission of helping first time and moderate income purchasers.” 

Written by Jason Oliva

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  • Excellent idea! FHA should also correct another glaring problem: the recent lowering of county loan limits eliminated the possibility of using FHA in many cities where sales activity is at it highest. Regulating by counties has never worked and never will. My personal example: I cannot do an FHA loan in most of western Riverside and San Bernardino Counties where I work, because the limit is $355k and the homes are selling above $400,000.

    • Ron,

      The article is exactly right that the current MIP rates are being charged to allow the MMI Fund net position to grow sufficiently to meet the 2% capital reserve legal requirement. But to achieve that objective, HUD first had to deal with the projected losses hemorrhaging from the HECM portion of the MMI Fund.

      The losses to the MMI Fund projected by the MMI Fund independent actuaries due to HECMs endorsed before October 1, 2012 were startling back in late calendar 2012. Besides the fund transfers described in the next paragraph, HUD has been trying to find ways of stopping the growing HECM losses. It became so extreme that Congress reluctantly passed the Reverse Mortgage Stabilization Act of 2013 last summer giving the HUD Secretary extraordinary independent power to change the HECM program.

      Since fiscal 2010, HUD has transferred over $6.5 billion from other MMI Fund programs and $1.7 billion from the US Treasury into the HECM portion of the MMI Fund to offset HECM projected losses. It is hoped that these actions will more than offset the expected losses from HECMs with case numbers assigned before October 1, 2013.

      Perhaps next fiscal year, HUD can begin cutting back the MIP rate charged on loans other than HECMs. This is particularly true if MMI Fund forward mortgage defaults and foreclosures and projected foreclosures continue to fall. It is generally believed that the HECM portion of the MMI Fund will need any further bolstering from the Treasury or other MMI Fund programs.

      However, it is good to hear that home values in the counties you mention have recovered so well. That indeed is encouraging.

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