WASHINGTON—NAFCU and CUNA are among several dozen organizations that are urging FHA to reduce the cost of its single-family mortgage insurance premiums and to expand access to safer and more affordable mortgages to more creditworthy households.
“In recent years, a combination of strong management, significant premium increases, and improvement in the economy has put the agency well on track to meet its capital reserve requirement by 2016, while policy changes to reduce risk layering have helped decrease risk,” the joint letter states. “However, considering FHA’s significant drop in volume and market share in recent years, it appears that the premium increases have kept many potential borrowers on the sidelines. Indeed, the premium increases may be hurting the financial condition of the fund, not helping it. Since 2011, annual insurance premiums have increased by nearly 150%, while its upfront fees have risen by 75%. The increases in the annual insurance premium have had the most significant impact on loan affordability.”
The letter points to FHA data showing the number of families purchasing homes with FHA- insured mortgages has declined in recent years and remains 44% below the historic norm. “Although the recent actuarial review notes that FHA collected $11 billion in premiums above expected losses in FY2014, the reduced volume of FHA originations directly translates into a slower rate of recapitalization for the MMI Fund,” the letter states. “According to a new analysis released by the Urban Institute, it is possible for the FHA to price new business more appropriately for the risk while still continuing to build its reserves.”
“What’s more, now that Fannie Mae and Freddie Mac will begin purchasing loans with down payments of as little as three percent, FHA could find itself losing additional market share, which could put additional downward pressure on the fund,” the letter continues. “On the other hand, the GSEs’ re-entry into the very low down payment segment of the market also could cause FHA to be adversely selected, which suggests that fee reductions should leave a buffer for these types of dynamic drivers.”
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