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White House may cut FHA premiums 50 bps by executive action

Obama housing speech could be boon for borrowers, bust for insurers

President Obama may announce an executive action to lower Federal Housing Administration premiums by as much as 50 basis points during his speech tomorrow in Phoenix, in the run up to his State of the Union address.

Whether GSE reform features in his speech is still up in the air – the White House press office tells HousingWire there’s no preview of the speech available yet – but housing will be the primary focus of Obama’s remarks, and several sources say that the President will likely announced the 0.5% cut to FHA premiums.

Private mortgage insurers such as Radian (RDN), MGIC (MTG), Essent Group (ESNT) and NMI Holdings have over the last couple of years enjoyed an increase in market share following boosts in FHA premiums. Share prices in those firms are sinking today on this news.

Real estate agents, however, are expected to receive the development warmly.

“Realtors are hopeful that during tomorrow’s speech in Phoenix, the President will announce his intention to lower FHA’s costly mortgage insurance premiums that have priced too many potential home owners out of the market. NAR estimates that in 2014, nearly 234,000 creditworthy borrowers were priced out of the housing market because of high FHA insurance premiums,” said National Association of Realtors President Chris Polychron, who will attend tomorrows speech. “By lowering its fees, FHA will provide greater access to homeownership for historically underserved groups. I look forward to attending the speech tomorrow and sharing our views with President Obama.”

The federal government’s home mortgage insurance program is operating in the black, but its insurance premiums remain at record-high levels.

An analysis by the Urban Institute indicates that that FHA can significantly lower premiums — charging current borrowers more appropriately for their risks — while continuing to build the necessary reserves against future losses.

The President's unilateral executive action could be met with fierce opposition in the newly sworn-in, Republican-controlled Congress.

On Nov. 17, the FHA released its actuarial report on the Mutual Mortgage Insurance Fund for single-family programs, and while the health of the regulating agency improved, it still has a way to go with its finances.

The FHA boasted a $21 billion improvement since late 2012, after implementing a series of financing changes. The MMI Fund, which handles single-family programs, gained almost $6 billion in value in the past 12 months, printing now at $4.8 billion. Last year it fell short by more than $1.3 billion.

The report served as a Rorschach test, with those on the left and right, and those in the industry and those advocating for fair housing using it to bolster their disparate agendas.

“Given that the FHA’s flagship fund – the Mutual Mortgage Insurance Fund  – is expected to remain below the Congressionally-mandated 2.0% threshold until October 2016, a decision to lower FHA premiums in 2015 would undoubtedly be met by considerable opposition from Congressional Republicans,” said Lauren Burk, analyst with Compass Point Research & Trading.

“Specifically, we believe that House Financial Services Chair (Jeb) Hensarling, R-Texas, and likely Senate Banking Committee Chair (Richard) Shelby, R-Ala., would publicly and aggressively attack a move to lower FHA premiums in advance of the MMIF clearing the 2.0% threshold,” Burk said in November.

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