Mortgage Trade Group Pushes for FHA Insurance Premium Reduction

A mortgage industry trade group wants the Federal Housing Administration (FHA) to reduce the annual mortgage insurance premium it charges to borrowers. 

The Community Home Lenders Association (CHLA) Tuesday proposed that FHA reduce the annual premium from the current 1.35% to 0.75% and to 0.5% for borrowers who successfully complete a counseling session pre-approved by the Department of Housing and Urban Development (HUD). 

CHLA noted that in FY 2014, the FHA is projected to net approximately $13 billion, or 7.25% on every new loan. 

To partially offset the revenue reduction that would result from the decrease in the annual premium, CHLA suggests that FHA increase its upfront premium from its current 2% to as much as 3%. 

Scott Olson, executive director of CHLA, sent a letter to Office of Management and Budget Director Sylvia Matthews Burwell, expressing concern that the current FHA premiums are too high and push affordability out of reach for homebuyers.

“We are concerned that FHA’s excessive levels of premium—particularly the 1.35% amount charged annually on a loan—risks making home purchase for many homebuyers affordable,” Olson wrote.

The group also proposed that as FHA’s financial status improved to meet its 2% reserve requirement for its Mutual Mortgage Insurance (MMI) fund, then the annual premium should be reduced to 0.5% for all borrowers. 

“We fully understand the need for the fund to be on firm financial footing,” Olsen said in a statement. “However, we believe that goal can and should be achieved in a balanced approach that is true to FHA’s core mission of helping first time and moderate income purchasers.” 

Written by Jason Oliva

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