WASHINGTON — When the Federal Housing Administration unexpectedly delayed the release of a highly anticipated audit of its capital reserves last week, the industry initially feared the government mortgage insurance fund was now in the red, or close.
After a few days of mulling over the news of the audit delay, mortgage bankers now have an additional worry — that the FHA will move to increase the mortgage insurance premium that the government charges borrowers, increasing closing costs for millions of potential borrowers.
Because the FHA has almost depleted its reserves — which stood at $8 billion at midyear — it is anticipated that the Department of Housing and Urban Development will seek to raise cash for the fund as quickly as possible. One way to do that is to increase the premium.
Currently FHA lenders charge a borrower roughly 165 basis points at the closing table plus 50 basis points monthly. The points are often financed and the borrower cannot recoup the premium. The 50 basis points are part of the monthly payment and can be adjusted up or down, depending on the FHA's needs and concerns.
FHA-backed loans account for 25% to 30% of all new originations, and have become the program of last resort for homebuyers with both poor credit and low or no down payments.
"If they need to raise cash I would rather see them raise the monthly rather than the up-front" premium, said a mortgage executive following the issue.
Jim Pair, the president of the National Association of Mortgage Brokers, said he isn't thrilled with the idea of raising the premium at all, unless the FHA really needs to.
"An increase at this time would be detrimental to the housing market," Pair said.
For now the FHA is not saying much about the state of its reserves — that is, cash it has set aside to cover its entire $700 billion of insurance. It is widely expected that when the FHA finally releases the audit results, the ratio of cash to mortgages covered will be below 2%.
Last week industry professionals were speculating that the ratio is now under 1% and maybe even near zero. At press time, the FHA declined to discuss the matter, saying the independent audit, conducted for the FHA by IFE Group of Rockville, Md., will finally be released within 10 days.
On Tuesday night HUD canceled a press conference on the audit set for Wednesday morning. The department later said it had questions about the accuracy of some of IFE's findings. IFE is running additional tests to ensure that the final report is accurate, the FHA said.