FHA to Cut Annual MIP on Forward Mortgages, ‘Wait and See’ for Reverses

The Federal Housing Administration announced Monday that it will reduce the annual mortgage insurance premium (MIP) on certain forward mortgages by a quarter of a percent. While there are no immediate plans to reduce MIPs on Home Equity Conversion Mortgages (HECM), the agency said it is taking a “wait and see” approach before considering any premium cuts for reverse mortgages.

FHA is reducing its annual MIP by 25 basis points for most new mortgages with a closing/disbursement date on or after January 27, 2017, according to Mortgagee Letter 2017-01 published Monday. The premium reduction revises annual MIP rates for certain FHA Title II forward mortgages.

Monday’s action an “appropriate measure”and the result of the FHA’s mission to support middle class American families on their path to homeownership, said Ed Golding, principal deputy assistant secretary for the Department of Housing and Urban Development’s Office of Housing.

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“We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers,” Golding said in a statement issued Monday. “Homeownership is the way most middle class Americans build wealth and achieve financial security for themselves and their families.”

As for HECMs, which were excluded from ML 2017-01, FHA is waiting to gauge the effects of program changes implemented in recent years before considering an MIP reduction on agency insured reverse mortgages.

“We’ve made very important reforms to the reverse mortgage program,” Golding told RMD during Monday’s press call. “It’s a program we’re committed to, but I think we need to let some of those reforms play out in order to know exactly what the appropriate level for the MIP would be on that. I think it’s more of a wait and see attitude at this point.”

FHA’s decision to reduce premiums reflects the fourth straight year of improved economic health of FHA’s Mutual Mortgage Insurance Fund, which gained $44 billion in value since 2012. Last year, an independent actuarial analysis found the MMI Fund’s capital ratio grew by $3.8 billion and now stands at 2.32% of all insurance in force—the second consecutive year since 2008 that FHA’s reserve ratio exceeded the statutorily required 2% threshold.

As a result of the 25 basis point reduction in annual MIP, FHA projects its new premiums will save new FHA-insured homeowners an average of $500 this year.

“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” said HUD Secretary Julian Castro during Monday’s press call. “This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.”

With mortgage rates rising in recent recents, lower premiums will make home loans more affordable, said Ed Brady, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Bloomington, Ill.

“The new premium structure will also help to ease stubbornly tight credit conditions in the mortgage market, and represents sound policy given a recent actuarial report that shows that the agency continues to strengthen its financial reserves,” Brady said in a statement issued Monday.

While news of the MIP reduction was welcomed by mortgage and housing industry groups, who applauded FHA for its decision to cut premiums and the positive impact this will have for borrowers, future uncertainty lingers.

“Reducing the cost of FHA loans benefits borrowers, but other changes to reduce uncertainty for lenders would be required to truly invigorate the FHA program,” said Mortgage Bankers Association President and CEO David Stevens in a prepared statement. “MBA looks forward to continuing to work with all stakeholders, including the new Administration, to ensure the safety and soundness of the FHA program.”

Read Mortgagee Letter 2017-01 here.

Written by Jason Oliva

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  • The HECM program is an enormous drag to the MMI Fund. For the foreseeable future, only forward mortgages should be permitted any adjustment to its ongoing MIP. Right now HECMs are not self sustaining on either an accrual basis and a year by year cash flow basis and have not been so for years.

    The question still remains if the HECM portion of the MMI Fund should be moved either back into the existing GI Fund or into a new separate fund. The current results from operations of the HECM program are far too volatile for the other programs in the MMI Fund.

  • I do agree with my friend Jim Veale, he brings up some powerful and important issues in his comment.

    On the other hand, we have to look at what impact FA will have on the fund, which should produce a much lower foreclosure percentage we had faced in the past, this will make a sizable difference.

    The other issue to look at is it will defiantly help the senior borrower in the long run. We also have to ask our selves if we can streamline the department and eliminate a lot of waste. Possibly between FA and what I just said on the elimination of waste and streamline the department will make all the difference in the world.

    Time will only tell us whether or not the two will put a new uplift to the drag the HECM program has had to the MMI fund!

    John A. Smaldone
    http://www.hanover-financial.com

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