Community Home Lenders Association Calls for FHA Fee Cut
Pricing Policy Should Modulate Towards Borrower Affordability
Contact: Scott Olson For Immediate Release
571-527-2601 February 18, 2014
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The Community Home Lenders Association (CHLA) today called for a reduction in the annual insurance premium the Federal Housing Administration (FHA) charges homebuyers.
CHLA’s call came in the form of a letter to the Office of Management and Budget, suggesting that targeted reductions in the high annual premium levels be included in the FY 2015 budget.
The CHLA proposal would reduce the annual premium from the current 1.35% to .75% (and to .5% for borrowers who complete prepurchase counseling). CHLA also calls for a subsequent reduction in the annual premium to .5% when the FHA MMIF fund reaches a 2% net worth level. CHLA suggested a partial offset of revenue loss by raising the upfront annual premium.
“We commend what the FHA has done in rebuilding the FHA fund, and in making program changes to improve loan performance,” said Scott Olson, CHLA Executive Director. “But we think it is time to ease up on the heavy annual premiums that are becoming a drag on home purchase affordability. This can be done consistent with a steady FHA fund replenishment.”
CHLA noted that last year’s FY 2014 budget projected the FHA to net nearly $13 billion in profits, an estimated 7.25% in profits on every loan. To partially offset the revenue reduction from a decrease in the annual premium, CHLA is proposing that FHA increase the upfront premium from its current 1.75% to as much as 3%. This would reduce the revenue loss; using last year’s baseline, FHA would still generate $10 billion in profits, and continue to build up the MMIF fund.
CHLA’s approach moves towards FHA’s more historical pricing structure, in place before it significantly ramped up annual premiums in recent years. FHA’s recent annual premium hikes more directly affected debt to income ratios, making loans and home purchases less affordable.
In its letter to OMB Director Sylvia Matthews Burwell, the CHLA said: “We believe that continuation of the current high premium levels runs the risk of prioritizing too rapid an increase in FHA’s net worth at the expense of home purchase affordability with respect to FHA loans. “
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