With FHA’s Capital Surge, NAR Calls for Reduced Premiums

November 15, 2019

The Federal Housing Administration may be at its best level financially since before the financial crisis, but that hasn’t yet translated into reduced premiums for FHA borrowers. The FHA’s capital levels through its Mutual Mortgage Insurance Fund are at the highest point since 2007, according to its 2019 Annual Report to Congress, released Thursday.

The FHA’s Mutual Mortgage Insurance Fund Capital Ratio was 4.84%, up from 2.76% last year. Seven years ago at the tail end of the housing crisis, that fund was nearly bankrupt. Congress mandates that the fund maintain at least a 2% ratio in reserves, which the FHA has done for the past five consecutive years.

The fund’s financial strength is allowing the FHA to continue to meet the needs of first-time home buyers, minorities, and those underserved by the current market, says Vince Malta, president of the National Association of REALTORS®. “However, the report also indicates current FHA buyers are paying premiums higher than necessary to cover taxpayer risks,” Malta says. “As a result, NAR urges the FHA to consider reducing premiums and eliminating the life-of-loan policy, ensuring this critical market sector is not paying unnecessary fees to fund separate federal programs. Moving forward, we will work closely with the FHA to ensure the program facilitates access to mortgage credit while appropriately managing the risk to taxpayers.”

Despite the uptick in the MMIF, the FHA has not made any change to reducing its “life of loan” policy, which since 2013 has required homeowners to pay premiums even after those with private mortgage insurance would traditionally be able to cancel a policy because of rising equity.

“When do we think we’re at a sufficient level to make any adjustments to premiums?” FHA Commissioner Brian Montgomery said on a call with the media this week. “I don’t think we’re there yet, but it’s something we’re looking at overall.”

The FHA’s market share of home purchase mortgages fell to 11.4% in 2019 from 12.3% the year prior; it was 18% in 2009. The average loan amount the FHA insured toward mortgages was $216,695, a 5% increase from fiscal year 2018.

National Association of REALTORS® and “FHA Capital Level Is the Highest Since 2007,” HousingWire (Nov. 14, 2019)