Jan 9, 2017 11:50 ET
FHA announces insurance-premium cut
In one of the last acts of the Obama administration, the Federal Housing Administration has announced another cut to the annual insurance premium on FHA loans.
The premium on most FHA loans, ones with balances of $625,500 or less, will be slashed by 25 basis points on Jan. 27 to the pre-crisis level, the U.S. Department of Housing and Urban Development, FHA’s overseer, said Monday. In another significant change, FHA also will eliminate the higher insurance cost for high-balance loans above $625,500. These larger-balance FHA loans will see a premium reduction of 45 basis points.
The premium on all 30-year FHA loans with loan-to-values at or under 95 percent will go to 55 basis points, or 60 basis points for loans exceeding an LTV of 95 percent.
After the housing crash, HUD raised the cost of insurance on borrowers several times, ultimately to a height of 1.35 percent in 2013. In early 2015, HUD cut the premium by 50 basis points to 85 basis points for 30-year loans with balances less than $625,500 and a loan-to-value exceeding 95 percent.
The National Association of Realtors (NAR) and some mortgage groups, such as the nonbank association, the Community Home Lenders Association (CHLA), have for months called on the agency to lower the premium to its precrisis level of 55 basis points, noting that FHA originations were boosted significantly by the cut in 2015.
“Actual FHA loan volume and a recent Federal Reserve Report showed that the prior FHA premium cut had a significant impact in creating new home purchase opportunities for borrowers — and we expect this new cut will do more of the same,” CHLA President Scott Olson said.
HUD estimated that the reduction will save the average borrower $500 this year.
“This is a question of simple math,” NAR President William Brown said. “Every time we cut the cost of mortgage insurance it means more borrowers meet the debt-to-income ratio required to purchase a home. It follows that dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA.”
The nation’s largest mortgage trade association, the Mortgage Bankers Association, however, has previously taken the position that another cut was unnecessary and could needlessly put the insurance fund at risk. MBA President David Stevens said HUD’s move was “a result of our industry’s and FHA’s shared commitment to quality underwriting.”
“Reducing the cost of FHA loans benefits borrowers, but other changes to reduce uncertainty for lenders would be required to truly invigorate the FHA program,” Stevens said. Stevens added that MBA would work with industry stakeholders and the Trump administration to ensure the safety and soundness of the FHA program.
In a news release, HUD said that mutual mortgage insurance fund has improved for four straight years, and in fiscal 2016 its capital ratio exceeded the required threshold of 2 percent for the second consecutive year.