Senators, Lenders Call on FHA to Reduce Mortgage Insurance Premiums

A group of lawmakers led by Sen. Barbara Boxer (D-CA) and industry members are calling on the Federal Housing Administration to reduce mortgage insurance premiums faced by borrowers who take loans with FHA insurance. 

In a letter sent last week to Department of Housing and Urban Development Secretary Julian Castro, Sen. Boxer and 17 colleagues requested of the housing chief that he ensure FHA loans are priced appropriately given the agency’s mission and the standing of its mutual mortgage insurance fund.

“With the improved outlook of the MMIF, we believe now is an appropriate time for the FHA to reexamine its premium levels to determine whether they can be reasonably and safely lowered,” the Senators wrote. “While preserving the solid footing of the reserve fund is essential, reducing fees does not necessarily conflict with this goal. As any business knows, just as a price that is set too high will lead to less profit, not more, lowering the premium on qualified borrowers may actually produce greater revenue and fully restore the capital ratio more quickly.”

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After losses sustained during and after the housing crisis, the FHA’s MMI fund is back on the right track, the senators noted, citing an actuarial review of the fund that found it had a positive economic value of $4.8 billion at fiscal year-end 2014. 

Industry members, including the National Association of Mortgage Professionals (NAMB), supported the lawmakers’ efforts. 

“From an industry perspective, it makes sense for the FHA ,” said NAMB CEO Don Frommeyer in a public statement. “If premiums remain this high, the Administration will be flooded with mortgage applications by borrowers with lower credit scores, while those with better credit will finance through Fannie Mae and Freddie Mac. And of course, we support anything that makes homeownership more accessible and more affordable for consumers.”

Written by Elizabeth Ecker

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  • While HUD was raising MIP on new forward mortgages accounted for in the MMI Fund, they were also taking funds out of those programs and placing them into the HECM part of that fund.

    So if HUD lowers the MIP on all forward mortgage programs in the MMI Fund, where will it get additional funds to cover the current and any future accumulated losses for the HECM program? The only significant other source is the US Treasury.

    HUD took $1.7 billion out of the other MMI Fund programs in fiscal 2010 and put it into the HECM part of the MMI Fund, $0.5 billion more in fiscal 2011, and $4.2 billion more during fiscal 2013. In total it was over $6.5 billion during those 3 fiscal years. With the $1.7 billion taken from the US Treasury in fiscal 2013, there is now over $8.2 billion in the HECM part of the MMI Fund which did not come from MIP but rather a direct appropriation from the US Treasury and transfers from other MMI Fund programs. The accumulated losses (the ending balance) for the HECM portion of the MMI Fund stands at $1.2 billion.

    Perhaps the deep losses from HECMs endorsements before 10/1/2013 have run their course and we will begin to see profits in the last half of this decade. If not, even more drastic program changes will be required in the future.

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