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Politics & Money

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Montgomery on cutting life-of-loan policy: "We're not there yet"

The Federal Housing Administration’s flagship Mutual Mortgage Insurance Fund is in the best condition since before the financial crisis, with capital levels at the highest level since 2007.

The FHA’s annual report to Congress showed a capital ratio of 4.84%, up from 2.76% last year. That’s from a fund that seven years ago, in the wake of the mortgage meltdown, was essentially bankrupt.

But the fund’s improved health doesn’t mean it’s ready to cut the much-hated “life of loan” policy, instituted in 2013, that requires homeowners to pay premiums long after someone with private mortgage insurance would be able to cancel a policy because of rising equity. It also doesn’t mean premiums are going down.

“Where is that correct number?” FHA Commissioner Brian Montgomery said on a call with reporters, referring to capital ratios that would be high enough to cut premiums. “When do we think we’re at a sufficient level to make any adjustments to premiums? I don’t think we’re there yet, but it’s something we’re looking at overall.”

The fund is required by Congress to maintain at least a 2% ratio in reserves, which it has done now for the fifth consecutive year.

FHA’s market share for home-purchase mortgages dropped to 11.4% in fiscal 2019 from 12.3% in the prior year. In 2009, the market share was 18%.

FHA endorsed 990,429 home mortgages in fiscal 2019 through its forward mortgage program, including 743,280 purchase loans. In 2018, FHA endorsed 1.06 million forward loans, including 776,284 purchase loans.

For both years, about 83% of borrowers were first-time homebuyers, according to the report.

The share of loans with borrower credit scores below 620 increased to 12.7% in 2019 from 11.2% in the prior year.

The average loan amount for FHA-insured forward mortgages was $216,695, an increase of about 5% from the FY 2018 average of $206,041.

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