WASHINGTON — The Department of Housing and Urban Development is continuing to reject calls to slash the annual premium for the Federal Housing Administration.
HUD Secretary Julian Castro reiterated this week that the agency had no plans to enact another premium cut despite renewed pressure by the National Association of Realtors.
"We reduced premiums in January 2015 and it has benefited homebuyers and achieved a stronger FHA," Castro said April 19 at a Mortgage Bankers Association meeting in Washington. "I am proud to report that the MMI fund is now back at 2%. While we have no current plans for further premium reductions, we are taking steps to enhance opportunities for homeownership."
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In one corner are groups like the Community Home Lenders Association and the major credit union groups, which are hoping the administration will further cut premiums after a reduction a year ago. In the other are the MBA and the ICBA, which argue a cut now would be too soon.
January 19 -
The Federal Housing Administration will continue to charge borrowers an annual premium over the entire life of the loan, rejecting calls from some housing advocates to change how its calculated.
February 11 -
Loans to first-time homeowners and others with low credit scores are a big part of the Federal Housing Administration's growth in purchase mortgages since the agency cut premiums.
August 25
The call comes after the Realtor assocation sent a letter asking the FHA to reduce its annual premium rate and repeal its life-of-loan policy.
The Realtors contend the financial condition of the FHA Mutual Mortgage Insurance Fund is continuing to improve along with the housing market.
"Recognizing the growing strength of the MMIF and the potential savings for homebuyers, NAR urges the FHA to eliminate the life of loan mortgage insurance premium requirement and reduce the annual mortgage insurance premium level," the Realtor group says in an April 7 letter to FHA chief Edward Golding.
In January 2015, the FHA reduced its 135-basis-point annual premium to 85 basis points. The Realtors are urging the FHA to reduce it to 55 basis points.
The FHA fund reached its 2% minimum capital ratio with help of the agency's reverse mortgage program. One source who spoke on condition of anonymity indicated that HUD officials want to see the FHA forward program reach the 2% mark on its own before considering another premium cut.
Independent auditors determine the FHA's capital ratio and their next report is slated to be released in the fall.
"When the forward program gets above 2%, I think it is very defensible to reduce premiums," the source said.
The Realtors argue that the FHA mortgage insurance fund's recovery is so strong that the premiums need to be reduced to "avoid overshooting the intended goal."
"A modest reduction in FHA's mortgage premium, coupled with the termination of their life-of-loan premium, would save consumers money and further strengthen the program by enticing more creditworthy borrowers to seek out an FHA-insured loan," NAR President Tom Salomone said in a statement Wednesday.
But the Realtors are opposed by industry groups.
The Mortgage Bankers Association claims it is too soon to reduce FHA premiums.
"While it is important to consider the cost of, and access to, credit for first time and lower and moderate income homebuyers, I think we need to keep in mind FHA's capital reserve levels, and get a better idea of the state of the agency's reserves before we consider another MIP reduction," said David Stevens, the MBA's president and CEO.
Private mortgage insurers have increased their capital standards, while the FHA has reduced its premiums and continues to increase its market share, according to Lindsey Johnson, the president and executive director of the U.S. Mortgage Insurers.
"The fund is barely above the 2% number, and except for house price appreciation and the reverse mortgage program, which is extremely volatile, it would not be above the required 2%," Johnson said in an interview. "We would question why they might consider lowering rates again."
Before the housing crash, the FHA would stop collecting premiums when a borrower's loan-to-value ratio reached 78%.
The FHA set the life-of-loan policy in early 2013, along with a 10-basis-point premium increase as a way to boost its premium stream and help private mortgage insurance companies.
"In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market," said former FHA Commissioner Carol Galante.
It wouldn't make sense for the FHA to end the life-of-loan policy, Johnson said, because the agency is still on the hook for any losses if the borrower defaults.
It just means the FHA is not receiving any premiums for the risk. "So it is a premium reduction at its heart," Johnson added.
Still, some observers argue that the Realtors are just firing the first shot in a campaign to push for an FHA premium reduction this fall.
Despite some resistance to a premium cut, "I think the marketplace expects a premium reduction," said Brian Chappelle, a mortgage consultant and co-founder of Potomac Partners. "It is just a matter of when, since the fund is well on the way to a 3% or more capital ratio this year."
