Despite the Federal Housing Administration’s Mutual Mortgage Insurance Fund needing a $1.7 billion taxpayer infusion in 2013, housing chief Julian Castro says now is the right time for the pendulum to swing back.
On CNBC’s “Squawk Box,” Castro, secretary of the Department of Housing and Urban Development, defended this week’s mortgage insurance premium reductions, saying they will create stability — both for homeowners and the MMI Fund.
“Really what this is about is maintaining a great balance between ensuring we have a strong Mutual Mortgage Insurance Fund and also fulfilling the FHA’s historic mission of providing opportunities for first-time homebuyeres and middle-class families to be able to own a home,” he said. “We’re not changing who qualifies for an FHA loan. What we’re talking about here is affordability.”
After the reductions, HUD anticipates the MMI Fund will grow by $7 billion to $10 billion over the next four years, Castro said, noting that this puts the FHA on a strong trajectory to meet its 2% capital reserve ratio.
In November, the fund’s overall net worth had improved by $6.1 billion in fiscal year 2014 — increasing from negative $1.3 billion to positive $4.8 billion.
Over the past few years, the fund has gained $21 billion in value, largely on the backs of new borrowers with pristine credit, CNBC writes. However, last year, Fannie Mae and Freddie Mac announced they would offer a 3% down payment loan for both new borrowers and those who wish to refinance.
In doing so, the FHA faced losing considerable market share, which prompts the question: Are the FHA’s MIP cuts a result of the government-sponsored enterprises’ moves?
“Certainly [Federal Housing Finance Agency] Director (Mel) Watt and the GSEs are doing some noteworthy things, but that’s not the ultimate driver of this decision,” Castro said. “The driver really is two things: what’s in the best interest of keeping the fund strong, and secondly, what’s in the best interest of the mission that FHA has historically furthered, which is to provide middle-class families and first-time homebuyers with the opportunity to own a home.”
To watch Castro’s interview, click here.
Written by Emily Study