NAHB Urges HUD Secretary to Act on FHA Mortgage Insurance Premium Cuts

Filed in Housing Finance by on March 10, 2017 2 Comments

NAHB sent a letter to HUD Secretary Ben Carson on March 9 urging the secretary to reinstate previously announced premium reductions on FHA-insured mortgages that were due to go into effect on Jan. 27 but suspended by the Trump administration.

A mortgagee letter was issued on Jan. 9 that would have reduced the annual mortgage insurance premium (MIP) by 25 basis points to 60 basis points for FHA-insured mortgages with less than a 5% down payment and to 55 basis points for mortgages with a down payment of 5% or more. The changes would have been effective for FHA-endorsed mortgages with a closing date on or after Jan. 27.

NAHB strongly supported this action by the outgoing Obama administration, noting that lower premiums would make home loans more affordable, help to ease tight credit conditions and represent sound policy given recent actuarial reports which show that FHA continues to strengthen its financial reserves.

However, one of the first actions by the Trump administration was to indefinitely suspend the FHA MIP cuts so that the new administration could do its own analysis on the strength of the Mutual Mortgage Insurance Fund.

In the letter to the HUD secretary, NAHB said that “we believe the results of such an analysis will find that the lower MIP rate will expand homeownership opportunities for FHA-eligible borrowers without negatively impacting the Mutual Mortgage Insurance. Fund. Thus, we strongly urge you to promptly reinstate the previously announced MIP reduction.”

For more information, contact Curtis Milton at 800-368-5242 x8597.

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Comments (2)

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  1. Martin Knezovich says:

    It will be interesting to see how long the NAHB’s excitement and support lasts, regarding the new administration.

  2. The reduction in the MIP will probably come back at some point, but how soon is unclear, as is whether or not it will be as sizable. As helpful as a lower premium might be for homebuyers, it is a concern that a huge bit of FHA business after the last premium reduction wasn’t due to a surge in homebuying, but rather a surge in homeowners doing FHA streamline refinances to lower their costs. To a degree, this diminishes the on-going strength of the FHA insurance pool.

    As beneficial as reductions in cost to borrowers may be, it bears remembering that not all that long ago, the FHA Mutual Insurance Fund was broke. It is in better fiscal shape today, even somewhat above congressionally-mandated reserves at this point, but is yet untested in adverse market conditions, and delinquencies are already on the rise. CNBC reported that “”The seasonally adjusted FHA delinquency rate increased to 9.02 percent in the fourth quarter from 8.3 percent in the third quarter, MBA data show”” and was driven by loans originated since 2014; this was the first jump since 2006.

    Will the reduction return? Probably, but perhaps not until it’s more clear if the surge in rates is a blip or a trend; even then, if only a blip, a smaller reduction seems more likely.

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