House Passes Bill Giving FHA Ability to Raise Insurance Premiums

The House passed legislation to give the Federal Housing Administration (FHA) flexibility to raise mortgage insurance premiums on the loans it guarantees on Friday.

In July, the House passed a broader bill doing the same but it remains stalled in the Senate.  The bill passed on Friday is a much narrower version and has a better chance to move quickly through the Senate.

Sponsored by House Financial Services Chairman Barney Frank, the bill gives FHA the authority to raise the mortgage insurance premiums charged for both forward and reverse mortgage loans.  Frank said the bill is part of a bipartisan effort to “make sure that the FHA is both an effective and efficient means for housing finance.”

The agency said it plans to raise annual premiums from 0.55% up to 1.55% for “forward” loans and from 0.50% to 1.25% for HECM loans.

The bill would also give the Housing and Urban Development the ability to adjust the premiums for a two reverse mortgage product approach outlined by Colin Cushman, Director of Portfolio Analysis at HUD earlier this year during a conference in Washington, DC.

The proposal includes the current HECM product with higher annual premiums and the “HECM Lite” would provide borrowers with less in proceeds but without an upfront premium.  Designed to be a pay as you go product, Cushman said it would help lower the risk to the FHA insurance fund and offer borrowers an additional option not currently available.

Frank’s bill also requires the assistant secretary of Housing and Urban Development to testify before Congress within 270 days of enactment of the bill to discuss the finances of the FHA.

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