Sen. Barbara Boxer, D-Calif., along with 17 other Democratic senators, is urging Department of Housing and Urban Development officials to consider a reduction in FHA mortgage insurance premiums.
“With the improved outlook of the MMIF, we believe now is an appropriate time for the Federal Housing Administration to re-examine its premium levels to determine whether they can be reasonably and safely lowered,” Boxer and her colleagues say in a letter to HUD Secretary Julian Castro.
“While premiums must be sufficient to cover expected losses and achieve a 2% excess reserve, the FHA guarantee should also be priced appropriately to serve the agency’s mission and provide a path to homeownership for the many creditworthy families still unable to obtain affordable financing through the private market,” the senators’ Dec. 18 letter says. FHA currently has a 0.41% capital ratio.
Separately, the Mortgage Bankers Association is urging the Federal Housing Administration to move quickly and reduce its mortgage insurance premiums.
The sudden urgency reflects MBA concerns about Fannie Mae and Freddie Mac rolling out new 3% down-payment loan products that are expected to be attractive to FHA’s best customers.
Maintaining high premiums could expose the FHA Mutual Mortgage Insurance Fund to “adverse selection that will slow the MMIF’s return to solvency and over time could reverse its recovery,” the MBA says in letter to Castro.
A Bank of America/Merrill Lynch Global Research study indicates that 30% of the high loan-to-value mortgages endorsed by FHA in fiscal year 2014 could have qualified for a 95% or 97% LTV mortgage offered by the two government-sponsored enterprises.
“The study further estimates that most of those borrowers would opt for a conventional loan, given the cost advantages of private mortgage insurance,” the MBA says in its Dec.18 letter.
FHA raised its premiums to rebuild its capital in the wake of severe losses due to the housing recession. The federal mortgage insurance agency currently charges a 175-basis-point upfront fee and a 135-basis-point annual fee the highest in FHA’s 80-year history.
The MBA points out that there is a long lag time before changes in pricing show up in the performance of the MMIF. “We think it is important for HUD to take steps now to restructure and reduce FHA’s premiums in ways that also support actuarial soundness,” according to the letter signed by MBA Chairman Bill Cosgrove.
FHA acting Commissioner Biniam Gebre has been reviewing FHA’s premiums in light of an FHA actuarial report that was released in November. “FHA has made no decisions regarding the premiums,” HUD press secretary Cameron French said Thursday.