The National Association of Realtors believes that the Trump administration’s recent decision to suspend a reduction in the Federal Housing Administration’s annual mortgage premiums will keep as many as 40,000 potential homebuyers from becoming actual homebuyers in 2017, and wants the premium cut reinstated “as soon as possible,” the trade organization said last week.
In one of the Trump administration’s first actions after President Donald Trump took the oath of office, the Department of Housing and Urban Affairs suspended a cut to the FHA’s mortgage insurance premiums, which was announced by the outgoing Obama administration in early January.
The cut had not taken effect when the Trump administration announced its intention to suspend the MI premium reduction, but in a letter addressed to Ben Carson, Trump’s choice to lead HUD, NAR said that the suspension of the FHA mortgage insurance premium cut caused “uncertainty and confusion” in the housing market and cost many consumers the opportunity to buy a home this year.
“NAR estimates that the premium reduction would have reduced costs for 750,000 to 850,000 homebuyers in 2017 with mortgages backed by the FHA. In addition, it would have made homeownership possible for an additional 30,000 to 40,000 homebuyers,” the trade organization said in its letter to Carson.
“The suspension of the premium reduction has created uncertainty and confusion for a significant number of borrowers, sellers, lenders and underwriters who entered into a new or refinance mortgage transaction in reliance on the reduced rates,” NAR continued. “These borrowers must face an increase in the cost of their loans and some may no longer qualify to purchase the home they intended to buy due to the increase in the premium rates.”
When the Obama administration announced the MI premium cut, some observers argued that the cut would put the FHA’s flagship fund, the Mutual Mortgage Insurance Fund, in danger of becoming depleted again.
“It seems the Obama administration’s parting gift to hardworking taxpayers is to put them at greater risk of footing the bill for yet another bailout,” House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said at the time.
As Hensarling noted, the FHA needed a $1.7 billion bailout in 2013, due to the significant shortages in the FHA’s MMI Fund, but the fund then turned in four years of growth, exceeding its Congressionally mandated target in each of the last two fiscal years.
In its letter, NAR said that suspending the premium cut will have an impact the FHA’s MMI fund as well.
“The last FHA premium cut helped to shore up the FHA’s books and restore the Mutual Mortgage Insurance Fund’s capital ratio above the statutory 2% level,” NAR writes. “Lower fees helped FHA to retain better borrowers from refinancing to private mortgage insurers who had re-entered the market, but more importantly, it helped to improve affordability allowing many previously sidelined borrowers to qualify for a home purchase.”
NAR argues that while bringing the MI premium cut back will reduce the FHA fund’s economic value, that decline will be made up by the expected increase in FHA lending going forward.
Additionally, NAR also asks for the FHA to suspend its life-of-the-loan policy, which stipulates that borrowers whose loans exceed 90% loan-to-value ratio at origination must maintain mortgage insurance throughout their entire loan term, regardless of the loan’s current LTV ratio.
“Once a borrower reaches 78% LTV, there is sufficient equity in that home that even if the homeowner eventually defaults, the value of the home in combination with the premiums paid in advance will cover any losses to the MMIF,” NAR writes.
“Why should FHA borrowers be denied the same relief from excess insurance? The life of loan premium essentially penalizes any homebuyer without the means to put down a larger down payment,” NAR continues. “Eliminating the life of loan requirement will reduce the borrower’s monthly payments, providing with them more cash on hand so they may better withstand economic shocks and thereby reduce defaults.”
NAR asks the FHA to allow for cancelation of annual mortgage insurance premiums for all borrowers that reach 78% LTV, as long as the borrower paid the annual mortgage insurance premiums for at least five years.
“NAR urges FHA to reinstate the 25 basis point premium reduction and remove the life of loan premium as soon as possible,” NAR concludes. “Homeownership is a key element of the American Dream and FHA makes that dream possible for millions of Americans. We look forward to working with this Administration to ensure FHA’s continued health and necessary participation in the housing market.”