Upcoming FHA insurance premium increases modeled on 7-year expectations
Whether or not the increases in Federal Housing Administration premiums will bring its insurance fund back to good health is dependent on the borrower paying the higher fees for at least seven years of the mortgage, according to data provided by the FHA to HousingWire. In August, the Senate approved a bill that would allow the FHA to raise insurance premiums on the mortgages it backs. The changes take effect Oct. 4. The upfront premium will be cut to 1% from 2.25%, while the monthly yield was increased to 0.90% from 0.55%. The FHA claims the new policy will add $300 million a month to the insurance fund. FHA Chief Risk Officer Bob Ryan told HousingWire that it would be "the biggest contributor" to getting the fund back to a 2% capital ratio as mandated by Congress. But Tim Cornelison, a mortgage broker with United Community Bank in Georgia, disagrees. He said because the monthly yield increase is less than the cut to the upfront fee, it would take up to 43 months, just shy of four years, before the fund realizes any gains. Ryan said the models built for the insurance premium increases are embedded in the budget and have been vetted. "It would take three years to make up unless the increase could go into effect on post-closed loans, which it can't," Ryan said. "But the issue is that we would expect on average that those loans would last a good bit more than three years. In fact, it would be a little bit more than double, to the seven- to eight-year range." But Cornelison said the ailments of the insurance fund isn't a problem that is seven years away. "The problem is immediate," he said. Ryan said the current FHA book of mortgages has improved from last year and is "considerably better for the 2007 and 2006 books." But while the underwriting standards for FHA have recently been tightened, those loans behind by 90 days or more has increased 31.5% from a year ago. Write to Jon Prior.