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Don’t Count on the FHA Lowering Insurance Premiums Anytime Soon


The fight to keep the FHA affordable to would-be home buyers is heating up.

Despite some intense efforts to get the FHA to bring down its annual mortgage insurance premiums to pre-crisis levels, it probably won’t happen this year. Or even next year…

And that’s straight from the horse’s mouth. Yesterday, FHA Commissioner Carol Galante did a little Q&A session with the Washington Post, and she pretty much shut down the idea of lowering premiums in the near future.

Earlier this month, the National Association of Realtors, along with other industry trade groups, sent letters to HUD urging it to lower the annual MIP on FHA loans to improve affordability for underserved borrowers, namely first-time buyers.

But those pleas appear to have fallen on deaf ears, as Galante told the WaPo it was “not the time to do a wholesale rollback of the premiums.”

Definitely Won’t Raise FHA Premiums

However, she did add that the agency definitely wouldn’t raise premiums any further. Sigh of relief.

For the record, they’ve been raised five times since 2010, nearly tripling from 0.55% to 1.35% today.

Clearly that has caused a lot of uproar, especially with pro-housing groups like NAR and the MBA, but apparently HUD is putting its foot down. But not premiums…

The reason? The FHA’s financial condition is still tenuous at best. Additionally, they last raised the annual MIP about a year ago, so to lower it after just 12 months would seem a bit silly and shortsighted, not to mention weak.

Galante also claimed the FHA’s reduced market share today versus several years ago may be more about the overall drop in loan origination volume (and higher mortgage rates), and not so much the higher premiums.

Per the article, FHA loans were used for about half of home purchases in 2008 and only around 20% today.

Asked what type of market share she’d like the FHA to have, she didn’t throw out a number but said somewhere between irrelevant and dominant, to paraphrase aggressively.

New Legislation Would Lower Upfront Premium for First-Time Buyers

While NAR and the MBA work on the annual premiums, Congresswoman Joyce Beatty (OH-03) is working on getting the FHA’s upfront mortgage insurance premium reduced.

On April 10th, she and a number of other legislators introduced the so-called “Housing Financial Literacy Act of 2014” (H.R. 4462).

At the moment, the upfront MIP is a pricey 1.75% of the loan amount, up from 1% back in early 2012.

The bill would reduce it to 1.50% for first-time home buyers who complete a HUD-certified housing counseling course that improves their financial acumen.

She points to studies that show pre-purchase housing counseling reduces the risk of mortgage default by one-third. So apparently it would more than pay for itself.  And because it targets first-time home buyers, HUD shouldn’t take issue with it.

Interestingly, HUD proposed a similar program last summer referred to as HAWK, or Homeowners Armed With Knowledge.

The pilot program would reduce insurance premiums for homeowners who take part in housing counseling prior to receiving an FHA loan, a move that could bolster the agency’s MMI Fund and improve the well-being of FHA borrowers.

When HAWK might actually roll out remains unclear.  In the mean time, renters might need to save more money or ask for a gift if they want to realize the dream of homeownership.

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