More Groups Urge FHA To Lower Premiums

December 22, 2014

A group of 18 senators, along with the nation's bankers and trade organizations — including the National Association of REALTORS® — are calling on the Federal Housing Administration to lower its insurance premiums.

In the latest letter to FHA and the U.S. Department of Housing and Urban Development, leaders from the Community Home Loan Association said that FHA-insured mortgages are too high and are making FHA loans less affordable for lower and middle-income home buyers.

Since 2010, FHA has raised its annual premium 145 percent, which means a borrower with a $200,000 loan must be able to pay $1,600 more per year in fees. 

The letters were issued after a recent report showed that the FHA has made progress in shoring up its finances. After two years of posting steep losses, the government insurer of home loans has seen its insurance fund climb to a profit, and the agency will no longer require emergency bailout money from the government. However, the agency says it has no plans to lower the cost of its loans. 

Critics have argued that the high insurance premiums tend to decrease loan volume and worsen credit quality for FHA-backed loans.

CHLA notes in its letter that an estimated 125,000 to 375,000 borrowers would have purchased a home in 2013 with an FHA loan but didn't due to FHA's hikes in annual premiums. The letter also states that FHA home-purchase volume has dropped by more than 40 percent since 2010, particularly among loans issued to African-American and Hispanic home buyers.

"We commend the FHA for the work it has done to stabilize the finances of FHA," says Scott Olson, executive director of CHLA. "This makes it possible to balance this continuing progress in building up the FHA Fund with the objective of improving access to credit and increased home ownership opportunities for qualified homebuyers. … [This change would] allow FHA to more fully meet its mission of affordable mortgage credit, while at the same time maintaining a steady buildup in the FHA MMI Fund."

NAR, the Mortgage Bankers Association, and a group of 18 senators have also asked for FHA to revisit its fees.

"Now that the [FHA] MMI Fund is on a path to recovery, NAR urges FHA to lower its annual mortgage insurance premiums and eliminate the requirement that mortgage insurance be held for the life of the loan," NAR said in a statement last month. "Achieving home ownership has become more difficult with current FHA mortgage insurance premiums. … By lowering its fees, FHA could provide greater access to home ownership for historically underserved groups."

Source: “Community Bankers Call on FHA to Lower Mortgage Insurance Premiums,” HousingWire (Dec. 19, 2014) and “18 Senators, Mortgage Bankers Tell HUD: Time to Lower FHA Premiums,” HousingWire (Dec. 18, 2014)