The Federal Housing Administration surprised some in the housing industry on Monday by reversing course and announcing that it plans to cut its annual mortgage insurance premiums, less than two months after saying there were no plans for further cuts.
According to the FHA, “most new mortgages” with a closing or disbursement date on or after Jan. 27, 2017 will see a 25 basis point cut to the annual mortgage premiums.
In its announcement, the FHA said that premium cut will lower the cost of housing and “significantly expand” mortgage credit availability, sentiments that the housing industry appears to agree with.
Throughout the housing industry, reactions to the FHA’s announcement varied from welcoming the cuts to wondering why it took the FHA so long to make the move.
David Stevens, the president and CEO of the Mortgage Bankers Association and a former FHA commissioner, said that consumers will benefit from the changes, but said that lenders need to see more changes to the FHA’s policies.
“The reduction in the premium is a result of our industry’s and FHA’s shared commitment to quality underwriting, and consumers will benefit as result,” Stevens said.
“Reducing the cost of FHA loans benefits borrowers, but other changes to reduce uncertainty for lenders would be required to truly invigorate the FHA program,” Stevens continued. “MBA looks forward to continuing to work with all stakeholders, including the new administration, to ensure the safety and soundness of the FHA program.”
The National Association of Realtors, which called for the FHA to cut its premiums in November on the strength of the FHA’s Mutual Mortgage Insurance Fund, said that the changes will help more first-time buyers enter the housing market, adding that the changes “breathe new life” into the FHA.
“FHA mortgage products exist to serve an important mission: providing homeownership opportunities to creditworthy borrowers who are overlooked by conventional lenders,” said NAR President William Brown.
“The high cost of mortgage insurance has unfortunately put those opportunities out of reach for many young, first-time- and lower-income borrowers,” Brown said. “Now, we have a real opportunity to get back on track.”
According to Brown, the FHA’s cut, which lowers the annual mortgage insurance premiums from 0.85% to 0.6%, will enable more borrowers to utilize the FHA program to buy a house.
“This is a question of simple math. Every time we cut the cost of mortgage insurance it means more borrowers meet the debt-to-income ratio required to purchase a home,” Brown said.
“It follows that dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA,” Brown continued. “That puts more money in the fund to protect taxpayers, and it puts more families in homes so they can live out the American dream.”
Scott Olson, the executive director of the Community Home Lenders Association, said that the FHA’s premium cut is long overdue.
“As the first national association to publicly call for this action, the CHLA commends FHA for its announcement today that it is cutting annual premiums by a quarter of a percentage point,” Olson said. “Actual FHA loan volume and a recent Federal Reserve Report showed that the prior FHA premium cut had a significant impact in creating new home purchase opportunities for borrowers - and we expect this new cut will do more of the same.”