Brown: FHA's Insurance Premiums Sidelining Buyers

April 3, 2014

The rising insurance rates on Federal Housing Administration mortgages are putting home purchases “increasingly out of reach” for many qualified buyers who rely on FHA financing, National Association of REALTORS® President Steve Brown wrote in a letter to FHA Commissioner Carol Galante. In the letter, Brown urged FHA to lower its annual mortgage insurance premiums. 

Brown acknowledged the significant losses that FHA’s Mutual Mortgage Insurance Fund faced during the housing crisis. FHA increased its premium structure as one way to reach a required 2 percent capital reserve ratio.

But now that the agency is on the path to recovery, NAR is urging FHA to lower the annual mortgage insurance premiums and eliminate the requirement that mortgage insurance be held for the life of the loan.

“Achieving home ownership has become more difficult with current FHA mortgage insurance premiums,” Brown writes. Today, FHA fees make up nearly 25 percent of a monthly mortgage payment. On a $150,000 loan at 4.5 percent interest, the mortgage interest is 13 percent higher today than it was in 2008, Brown notes.

He adds that an estimated 125,000 to 375,000 potential buyers were priced out of the market in 2013 because of FHA’s high insurance premiums and mortgage insurance requirements.

The Department of Housing and Urban Development has proposed a new program called Homeowners Armed With Knowledge (HAWK), a pilot program that will offer reductions in FHA mortgage insurance premiums for home buyers who complete housing counseling.

“While HAWK is a step in the right direction, NAR is concerned about the amount of time it will take to develop the program and make it available to home buyers,” Brown writes. “We have many qualified home buyers who need help now but are being shut out of the market due to record high annual premiums and mortgage insurance for the life of the loan.”

Source: National Association of REALTORS® and “REALTORS® to FHA: Your Mortgage Insurance Rates Drive Buyers Away,” HousingWire (April 2, 2014)

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