Realtors Call on FHA to Lower Insurance Fees

Nonconforming

The Federal Housing Administration is shutting the door on too many potential homebuyers by charging high and unaffordable mortgage insurance premiums, according to the National Association of Realtors.

In a letter to the agency, NAR president Steve Brown argued that between 125,000 and 375,000 renters would have been able to buy a home in 2013 had they not been priced out of the market by the FHA’s policies.

“Now that the FHA mortgage insurance fund is on the path to recovery, NAR urges FHA to lower the annual mortgage insurance premium and eliminate the requirement that mortgage insurance is held for the life of the loan,” Brown says.

The FHA is under growing pressure by industry groups to lower its premiums, which began increasing in 2010 as a way to deal with mounting defaults and losses to the FHA’s mortgage insurance fund.

The agency currently charges a 1.75% upfront fee, which can be rolled into loan amount, and a 1.35% annual premium. The cost of financing the upfront fee and paying the annual premium now makes up 20% of a borrower’s monthly mortgage payment, according to NAR.

“On a $150,000 loan, at a 4.5% interest rate, the mortgage payment is 13% higher today than in 2008,” says Brown.

In mid-February, the Community Home Lenders Association also urged FHA to reduce the annual premium.

“We think it is time to ease up on the heavy annual premiums that are becoming a drag on home purchase affordability,” said Scott Olson, the group’s executive director.

CHLA suggested that the agency could increase its 1.75% upfront fee as a way to continue to recapitalize the FHA Mutual Mortgage Insurance Fund. NAR also supports that approach.

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

The FHA annual premium is now 80 basis points higher than in 2010 when it was 0.55%. NAR economists estimate the increased fee pushed 1.45 million to 1.65 million renters over the mortgage debt-to-income ratio allowable under the FHA program. (The FHA allows a maximum mortgage DTI ratio of 31%. The average DTI ratio on FHA loans is 28%.)

FHA endorsed 677,500 home purchase loans in calendar year 2013.

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