When the Department of Housing and Urban Development announced it suspended the reduction of FHA mortgage insurance premiums, it helped the private mortgage insurance market retain $10 billion in volume.
Duane Duncan, head of Government relations at Genworth, explained in an interview with HousingWire what the suspension means for private mortgage insurance companies since the two industries (government vs. private mortgage insurance companies) have become competitors as of late.
Duncan said it’s not surprising that the reduction got caught up in all the things that were getting rolled back by President Donald Trump.
The Obama administration waited until the last second to reduce FHA mortgage insurance premiums, lowering it the same month Former President Obama exited the office. The move marked the second time the Obama administration reduced premiums in two years.
Duncan pointed to the Federal Housing Administration’s Actuarial Report as a gauge for the FHA, noting that this is only the second year in a row that FHA met and exceeded the 2% capital reserve requirement for the Mutual Mortgage Insurance Fund. And it’s important to note that the first time the FHA met the 2% threshold was due to a large gain from the Home Equity Conversion Mortgage (HECM) program (a reverse mortgage for seniors), which is known to the volatile.
While it’s very good news that the MMIF has improved, Duncan said that they should hold it longer and questioned why they would reduce it so quickly.
However, now that it’s suspended, Duncan said he doesn’t see any impetus to put it back on the table and go through with reducing FHA premiums, especially since, in his eyes, the market is already being served in the private sector.
But if Trump does choose to reinstate the reduction, it poses a larger question: If the FHA is aggressive in price, it will move markets but is that the role of the government? Private mortgage insurance companies are already serving the need, Duncan added.
The move to reduce premiums would’ve cut annual premiums by 25 basis points, which Duncan said would’ve taken $10 billion in volume away from the private sector. Private mortgage insurance companies did just north of $250 billion in volume in 2016.
“It’s not huge, but it’s a pretty significant,” said Duncan.
“The FHA was created to provide a countercyclical role to the government. The FHA did increase in the bad times and played a much bigger role,” he said.
However, now Duncan said, “The footprint exceeds where the market needs them to be.”