The case for (and against) lowering FHA premiums

The case for (and against) lowering FHA premiums

Soon after the Department of Housing and Urban Development released its Mutual Mortgage Insurance fund report, housing finance and policy experts opined on whether the Federal Housing Administration (FHA) should lower the fees it charges borrowers.

The fund, which insures mortgages backed by the Federal Housing Administration, benefited from the same macroeconomic factors that have boosted the broader mortgage market. The MMI fund’s capital ratio at the end of September rose nearly two percentage points to 8.03%, driven by rising home prices and low mortgage rates.

Although HUD could arguably lower its mortgage insurance premiums — which FHA requires its borrowers to pay — there is no sign it has altered its stance from earlier this year. In March, HUD Sec. Marcia Fudge said the agency had “no near-term plans to change FHA’s mortgage insurance premium pricing.”

To explain the agency’s reasoning in light of the fund’s stellar performance, HUD officials laid out uncertainties that could imperil it. There are still 660,000 seriously delinquent borrowers in the FHA portfolio, and the report raised the possibility that foreclosures could cause home prices to drop. Rising mortgage rates could also make loss mitigation options more expensive.

But several industry groups who represent lenders think now is the time for HUD to at least consider lowering its mortgage insurance premiums.

Bob Broeksmit, the CEO of the Mortgage Bankers Association, called on HUD to “expeditiously examine reductions” to the fees.

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