Could the Federal Housing Administration’s life of loan insurance requirement soon be a thing of the past?
Cutting the life of loan policy, which requires most FHA borrowers to maintain mortgage insurance throughout their entire loan term, is a change that many in the housing business have wanted for years, and now, cutting the life of loan policy is officially on the table, thanks to a newly introduced bill in Congress.
The bill, entitled the Making FHA More Affordable Act, was introduced Thursday by Rep. Maxine Waters, D-Calif., the ranking member on the House Financial Services Committee.
The bill would repeal the life of loan requirement and reinstate the FHA’s previous policy of requiring borrowers to pay mortgage insurance premiums until the outstanding principal balance reaches 78% of the original home value.
The FHA changed its policy and instituted the life of loan policy back in 2013, as part of an effort to improve the health of the FHA’s flagship fund, the Mutual Mortgage Insurance Fund.
The FHA needed a $1.7 billion bailout in 2013, due to the significant shortages in the FHA’s MMI Fund. Since then, the fund turned in four years of growth, exceeding its Congressionally mandated target in each of the last two fiscal years.
And now, with the MMI Fund on better footing, Waters is pushing for the elimination of the life of loan policy.
“Families who take out home loans through the Federal Housing Administration should not be unnecessarily burdened with mortgage insurance premiums for the life of the loan,” Waters said in a statement. “My bill would remove this unfair requirement for FHA borrowers and help to make mortgages more affordable for hardworking Americans.”
According to Waters’ office, several housing trade groups and fair housing groups support the bill, including: the National Association of Realtors, the National Association of Real Estate Brokers, the Community Home Lenders Association, the National Consumer Law Center, the National Housing Conference, the National Community Reinvestment Coalition, the California Reinvestment Coalition, and the National Association of Hispanic Real Estate Professionals.
“Low and moderate-income homebuyers often look to FHA, but policies like the ‘life of loan’ mortgage insurance make it harder for those creditworthy buyers to close the deal,” William Brown, president of the National Association of Realtors, said.
“Lifetime mortgage insurance requirements also encourage strong borrowers with substantial equity in their home to refinance into a conventional mortgage product. That represents a missed opportunity to further strengthen the FHA portfolio,” Brown said. “This legislation will take unnecessary burdens off the backs of homebuyers who look to FHA for a mortgage. Realtors know that’s good for consumers and the housing market broadly, and we thank Congresswoman Waters for her leadership on this important issue.”
John Taylor, the president and CEO of the National Community Reinvestment Coalition, urged the immediate passage of the Making FHA More Affordable Act. “Through this legislation, Representative Waters is championing homeownership opportunity,” Taylor said.
“Returning to a more reasonable FHA premium policy is the right move now that home prices and mortgage markets have stabilized and the FHA’s financial position is strong,” Ethan Handelman, acting CEO of the National Housing Conference, said. “It helps homeowners build wealth and save for the future, so they’ll be better prepared for the next economic downturn.”