Government LendingMortgage

CHLA and 41 IMBs urge the FHA to cut MI premiums

Letter notes that with record net worth, FHA's mission to rebuild its fund has “long been accomplished”

The Community Home Lenders Association (CHLA) sent a letter, signed by 41 independent mortgage banks, to the Federal Housing Administration (FHA) on Wednesday urging the administration to cut mortgage insurance premiums.

The letter, which includes signatures from South Carolina-based Movement Mortgage, Cherry Creek Mortgage, Texas-based Thrive Mortgage and Draper & Kramer Mortgage, advised the FHA to get rid of its life of loan policy and reduce the annual premiums by 30 basis points to .55%.  

A spokesperson for the Department of Housing and Urban Development (HUD) said in a statement that the administration is continuing to monitor seriously delinquent loans in its portfolio as it weighs premium pricing, and that to date, they have been “pleased.”

“We are seeing positive trends that indicate the effectiveness of the options we have implemented,” the HUD spokesperson said. “We have taken the time in the first part of the current calendar year to evaluate outcomes for delinquent borrowers as a component of our review of current mortgage insurance premium pricing. We will continue to be judicious about if, when, and how we consider changes to FHA’s mortgage insurance premiums.”

The CHLA letter explained that the FHA should end its life of loan premium policy because it overcharges FHA borrowers, resulting in many borrowers refinancing out of the FHA program.

According to the trade group, since the life of loan policy went into effect in 2013, FHA’s retention of refinanced loans has plummeted. FHA’s retention rate of refinanced loans was over 50% when life of loan began and is now below 14%, the letter said.

The letter also said that FHA’s net worth is at record levels of over 8%, more than four times its statutory requirement and that FHA’s mission to rebuild its fund has “long been accomplished.”

Only by cutting premiums will the administration be able to carry out its objectives of improving racial equity and increasing homeownership, the trade group said.

The last premium reduction took place in 2015, when the Obama administration, buoyed by an improving economy, slashed the premiums from 1.35% to .85%.

The CHLA said that the premium reduction seven years ago was a “huge success” and that home purchases grew by 27% the year after premiums were cut.

But not everyone is on board.

The U.S. Mortgage Insurers, a trade group that represents mortgage insurance companies, published a statement on their website Wednesday calling for the FHA to do the opposite.

“The FHA should not reduce its mortgage insurance premiums at this time,” the USMI wrote in bold letters on its website.

The USMI said that lowering premiums will have negative consequences of further increasing demand with minimal housing supply. The trade group also said that there is too much economic uncertainty.

The conversation about premiums comes to a head following Julia Gordon’s confirmation to run the FHA last week. Industry stakeholders and fair housing advocates have predicted that after an FHA commissioner is confirmed, the HUD will move to cut premiums.

Gordon has supported a premium reduction in the past.

In 2015, Gordon, at the time a senior director at the liberal think tank Center for American Progress, testified before the Subcommittee on Housing and Insurance where she said that the cut in mortgage premiums implemented by the Obama administration would “help [ensure] that FHA continues to be available to the underserved borrowers that most need it.”

She said during her testimony that this “recalibration” would help to spur a steady supply of first-time homebuyers who could then become move-up homebuyers.

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