Realtors to FHA: Reduce Mortgage Insurance Premiums

The National Association of Realtors (NAR) is urging the Federal Housing Administration (FHA) to lower its mortgage insurance premiums, airing concerns that the high rates make home purchases “out of reach” for many qualified borrowers. 

NAR President Steve Brown sent a letter Monday to FHA Commissioner Carol Galante, imploring her agency to lower the annual mortgage insurance premiums. 

Doing so, Brown suggests, would facilitate greater access to homeownership for first-time home buyers who may have been priced out under current FHA premiums.

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“Achieving homeownership has become more difficult with current FHA mortgage insurance premiums,” Brown writes, citing that FHA fees in 2014 make up nearly 20% of a monthly mortgage payment. “On a $150,000 loan, at 4.5 percent interest, the mortgage payment is 13 percent higher today than it was in 2008.”

NAR’s request arrives as the FHA’s Mutual Mortgage Insurance Fund—which has shown a $15 billion improvement over the course of FY 2013—is on the path to recovery.

By lowering the annual mortgage insurance premium, and also eliminating the requirement that mortgage insurance is held for the life of the loan, FHA can slow the rate of prepayments that are having a “negative effect” on the Fund, Brown suggests.

Citing data from the Department of Housing and Urban Development (HUD), Brown notes that full payoffs were 81% of FHA’s prepayments. Additionally, while only 50% of FHA prepayments were full payoffs in 2012, prepayments in FY 2013 were at their highest level since the end of FY 2004. 

“It is possible to increase the upfront premiums and lower the MIP and continue to replenish the MMI Fund,” writes Brown. 

Brown furthers his point by noting that in 2014, the MIP of 1.35% is 80 basis points higher than the rate of 0.55% in 2010—a growth that pushed an estimated 1.45 million to 1.65 million renters over a sustainable debt-to-income level for purchase of a home in 2013, according to data from NAR, the U.S. Census Bureau and Genworth. 

“Adjusting for FHA market share and taking repeat buyers into account, these changes may have priced out as many as 125,000 to 375,000 home buyers,” he writes. 

Efforts to reduce FHA mortgage insurance premiums are already underway via a pilot program proposed by HUD called Homeowners Armed With Knowledge (HAWK). 

The program aims to offer reductions in FHA MIPs if a homebuyer completes housing counseling, though many details have yet to be revealed regarding eligibility and implementation.

“While HAWK is a step in the right direction, NAR is concerned about the amount of time it will take to develop the program and make it available to home buyers,” Brown writes. “We have many qualified homebuyers who need help now, but are being shut out of the market due to record high annual premiums and mortgage insurance for the life of the loan.”

Read Brown’s letter to FHA 

Written by Jason Oliva

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  • Missing from this story is the fact that since fiscal 2009, HUD has taken over $6.5 billion from other MMI Fund programs to support HECMs. That money could have saved other program participants considerable MIP.

    The HECM program has been damaging to other MMI Fund Programs whose participants are unknowingly paying for the HECM program. Hardly seems fair.

    For those who may not be aware, like all HUD loan programs, taxpayers annually subsidize the HECM program. It is absolutely astounding that so many in the industry ignore the annual HUD appropriation, as the means by which all HECM operating, general, administrative and other costs are funded. The only thing MIP pays for are loss reimbursements are specified costs of HECMs in assignment.

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