The Washington Post Wonkblog 4/21/14 – Why a Government Agency Won’t Lower Mortgage Fees for Borrowers

From The Washington Post Wonkblog

Why a government agency won’t lower mortgage fees for borrowers

By Dina ElBoghdady

April 21 at 2:27 pm

Two influential housing industry trade groups voiced alarm this month about the fees borrowers must pay when they take out a mortgage backed by the Federal Housing Administration – a popular source of loans for cash-strapped, first-time home buyers.

The National Association of Realtors and the Mortgage Bankers Association sent letters to the agency asking it to lower the “annual premiums” that are tacked onto monthly mortgage payments. The FHA has raised these types of fees five times since 2010, from .55 percent of the loan’s value to 1.35 percent. Those fees and others are used to cover lender losses when borrowers default on a mortgage. (The agency itself does not make loans — it insures lenders against losses if the loans go bad.)

But the industry says the fees have become too expensive, shutting out the very borrowers that the agency is meant to serve. The Community Home Lenders Association lodged a similar complaint in a letter to the White House earlier this year. MBA says borrowers who take out a $100,000 FHA loan in 2014 will pay about $600 more in fees each year than they would have in 2008 on a 30-year, fixed rate mortgage.

Still, the FHA is holding firm as the Obama administration pushes to scale back the government’s role in the housing and protect its coffers. Here’s what FHA Commissioner Carol Galante told The Washington Post about her agency’s position on this matter. The interview has been edited for clarity and length.

Why has the agency increased the premiums so much?

It’s important that every financial institution price properly for the risk it’s taking on. I do think that we have reached a tipping point though, and I can clearly say we’re not going to continue to increase premiums. But it’s also not the time to do a wholesale rollback of the premiums. FHA’s financial condition is not where it should be yet.

[What this means: When lending sources dried up during the financial crisis, the FHA propped up the housing market by insuring the lenders it works with against losses and enticing them back into the market. But FHA’s default rate shot up as its loan volume expanded, depleting its cash reserves to levels below what is required by law. In September, FHA tapped taxpayer money to cover its losses for the first time in the agency’s 80-year history. The president’s most recent budget request projected that FHA will not need taxpayer dollars to cover losses in fiscal 2015]

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