Fudge won’t cut mortgage insurance premiums

Industry had hoped for 25 bps cut

Housing and Urban Development Secretary Marcia Fudge put an end to speculation that the agency would move to reduce the Federal Housing Authority‘s mortgage insurance premiums by 25 basis points.

“Given the current FHA delinquency crisis and our duty to manage risks and the overall health of the fund, we have no near-term plans to change FHA’s mortgage insurance premium pricing,” Fudge said Tuesday in a statement that accompanied the quarterly report to Congress on the financial status of the FHA’s Mutual Mortgage Insurance Fund. “We will continue to rigorously evaluate our strategy and work transparently with Congress. Our No. 1 priority is helping families keep their homes and remain safe as we work toward an equitable recovery.”

In her statement, the HUD secretary noted that the MMIF is overall doing well despite the financial problems wrought by the COVID-19 pandemic.

“The health of FHA’s Mutual Mortgage Insurance Fund has remained resilient despite the financial challenges faced by homeowners with FHA-insured mortgages in 2020,” she said. “The fund stands at more than $80 billion and remains well above the 2% minimum capital reserve required.”

Still, the agency was clear in its message to Congress that concerns about troubled borrowers remain. Though the share of loans originated with higher risk attributes decreased or moderated in 2020, portfolio performance deteriorated in the second half of the year, largely driven by COVID-19 related factors, HUD said. Those hardships continued in the first quarter – seriously delinquent mortgages increased from 4% to 12% year-over-year, and early payment defaults increased from less than 1% to nearly 6%.

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Beyond that, a cut in mortgage premiums would likely give even more juice to a housing market that has record demand and historically low inventory, pushing prices even higher.

During her nomination, Fudge was noncommittal about potential cuts to the mortgage insurance. But several significant industry players were hopeful that the Biden administration would consider a reduction by at least 25 basis points.

The National Association of Realtors and Community Home Lenders Association have both pushed for the MIP cut. The trade groups argued a reduction in FHA insurance premiums would decrease monthly mortgage payments for thousands of low- and moderate-income borrowers.

In a statement issued on Tuesday afternoon, Mortgage Bankers Association President and CEO Bob Broeksmit was careful not to criticize Fudge on the decision not to cut mortgage insurance premium prices.

“MBA commends Secretary Fudge for maintaining FHA’s current mortgage insurance premium pricing until we have a clearer picture of the long-term impact of the pandemic on FHA borrowers and the insurance fund,” he said. “While it is desirable to have lower mortgage financing costs, particularly as rates rise and home prices continue to increase, we agree with HUD that we need more data about how the more than 1 million FHA loans that are delinquent perform as they exit COVID-19-related forbearance.”

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