Earlier this year, some analysts predicted that the Federal Housing Administration would cut its mortgage insurance premiums, assuming that the FHA’s Mutual Mortgage Insurance Fund continued its growth of the last few years.
The FHA reported Tuesday that its flagship fund did indeed grow in fiscal 2016, further surpassing its Congressionally mandated threshold of 2% and reaching 2.32%.
So, will the FHA cut its premiums? No, not so much, according to Ed Golding, the Department of Housing and Urban Development’s principal deputy assistant secretary for housing.
Golding said Tuesday that the FHA is not considering cutting its mortgage insurance premiums, despite the FHA’s flagship fund showing growth for the fourth year in a row.
But is the FHA’s current plan misguided? Several organizations think so.
One of those is the National Association of Realtors, which said Tuesday that the strength of the MMI Fund shows that the FHA can and should consider reducing its premiums and cutting the life of loan policy.
“FHA’s actuarial report shows that the fund has indisputably found its footing,” said NAR President William Brown.
“That’s good news for taxpayers, and a reflection of FHA’s sound stewardship,” Brown continued. “It’s clear from this report that FHA can continue taking responsible steps to manage their risk even as they take action to make homeownership more affordable for lower- and middle-income buyers.”
Brown noted that the growth in the MMI Fund came from single-family forward mortgages, not the FHA’s Home Equity Conversion Mortgage program as it did last year, which gives the FHA even more reason to cut its premiums.
“FHA mortgages are an important option for buyers, but high premiums and lifetime insurance requirements can take that option right off the table,” Brown said.
“By lowering premiums and eliminating life of loan mortgage insurance, FHA can expand on their work to serve a broad population of homebuyers,” Brown concluded. “We look forward to working with them in the months ahead to bring these changes to light.”
The Community Home Lenders Association agrees with NAR’s view of the MMI Fund.
“The Community Home Lenders Association commends FHA for its solid financial results as demonstrated in its 2016 Actuarial Report – and renews its call made in a letter last month for a further premium cut, to improve mortgage access to credit,” Scott Olson, the executive director of the Community Home Lenders Association said Tuesday.
The further Olson references there is the call for an additional premium cut beyond the 50 basis point cut of the FHA’s annual mortgage insurance premiums that was announced last year.
Olson said that the CHLA would like to see the FHA cut its annual premiums from .85% to .55%, arguing that the previous cut significantly helped borrowers without harming the MMI Fund.
An additional cut could help even more borrowers, Olson said.
The Mortgage Bankers Association, on the other hand, calls for a more cautious approach moving forward.
“FHA and its leadership should be commended for the steps they have taken to improve the value of the FHA MMI fund for single family mortgages since the economic crisis, at the same time they have provided access to homeownership for hundreds of thousands of low and moderate income Americans,” MBA President and CEO David Stevens said. “The core strength of FHA’s forward book of business is representative of growing stability of the housing market nationally.”
Stevens noted the volatility of the FHA’s HECM portfolio as a reason to not move quickly to cut premiums again.
“An important subtext to this report is the continued volatility in the HECM book of business, which this year turned negative, dragging down the overall value of the MMIF,” Stevens said. “Given the importance of FHA to low and moderate income and first time homebuyers, the next administration may want to look at accounting for the two programs individually in order to isolate the critically important forward book from the wild swings of the HECM fund.”
Stevens said that any discussions of a further cut should include a full view of what goes into the FHA’s MMI Fund and the impact of a cut on the continued strength of the FHA fund.
“Today’s positive report on the state of FHA will most likely renew calls for a reduction in FHA fees. It is a worthwhile conversation, but must caution that today’s report again shows the vulnerability to the reserve fund posed by the volatility in the HECM book,” Stevens said.
“Given the HECM volatility and recent concerns about liquidity in the Ginnie Mae market, these discussions should occur with an eye toward long term stability for the FHA program,” Stevens added. “We look forward to working with FHA to evaluate options that balance the need to ensure affordability for FHA borrowers, maintain actuarial soundness, and preserve stability in the Ginnie Mae mortgage backed security and mortgage servicing rights markets.”
Perhaps unsurprisingly, the U.S. Mortgage Insurers feels that the FHA’s report provides more reason for the government to step back from its oversized role in the U.S. housing economy.
“Consistent with improvement in the overall mortgage credit market, we welcome the news that FHA’s single-family forward program and the home equity conversion mortgage program are both above the statutory required 2% capital ratio,” Lindsey Johnson, USMI president and executive director, said.
“Now that FHA’s single-family fund has climbed its way back, this moment presents an opportunity for the new Administration and lawmakers to consider a coordinated housing policy to ensure broad access to low down payment lending while reducing the government’s footprint in housing and protecting taxpayers,” Johnson continued.
“This is the time to refocus the FHA back to its core mission. Fortunately, today there is a healthy low down payment GSE mortgage market — backed by private mortgage insurance — available to borrowers so FHA no longer needs to play an oversized role in our housing market,” Johnson said.
“Private mortgage insurers put their own capital at risk to mitigate mortgage credit risk, provided over $50 billion in credit risk protection since the financial crisis to the GSEs, and did not take any taxpayer bailout,” Johnson added.
“And this market has been strengthened since the financial crisis as all MIs have all implemented significant new capital requirements, or the Private Mortgage Insurer Eligibility Requirements, which are stress-tested financial and capital requirements established by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency, enhancing MI’s ability to assume mortgage credit risk in the future,” Johnson said.
“The MI industry and FHA should serve complementary roles to promote broad and sustainable homeownership,” Johnson concluded. “To accomplish this, FHA needs to not only become more financially resilient, in line with the rest of the financial system, but also remain focused on its core mission of serving underserved communities. USMI stands ready to work with the new Administration and Congress to enhance a mortgage finance system that meets the needs of low down payment borrowers while protecting taxpayers.”