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Trade groups representing mortgage bankers renewed their call for lower FHA mortgage insurance premiums Friday after the release of a report showing the Federal Housing Administration continues to build up reserves for losses.
But private mortgage insurers hope to avoid further FHA premium cuts, similar to the 35% cut the Biden administration approved last year that is expected to save homebuyers billions of dollars. Ben Carson, former Trump administration housing secretary and author of Project 2025, even advocates raising FHA premiums.
In releasing its annual report to Congress on the financial health of FHA's mortgage insurance program on Friday, the Department of Housing and Urban Development (HUD) said FHA “maintains a very strong and well-capitalized insurance fund. ” he said.
The FHA Mutual Mortgage Insurance (MMI) Fund, which fell below the legal minimum interest rate of 2% from 2009 to 2014 and required $1.69 billion in taxpayer relief, lost $27.5 billion in the year ended September 30. HUD reported that it has increased its reserves.
The capital adequacy ratio of MMI funds reached $172.8 billion, increasing to 11.47%, more than five times the legal minimum, said Bob Bruksmit, president and CEO of the Mortgage Bankers Association. pointed out that they are calling for further reductions in FHA insurance premiums.
bob bruksmit
“While it is prudent to have a healthy cushion above the 2% minimum reserve requirement, eligible borrowers should not be charged higher mortgage insurance premiums (MIPs) than necessary,” Broeksmit said in a statement. said.
MBA also repeatedly called for the elimination of FHA's “loan term” requirement. Borrowers who have private mortgage insurance are exempt from the requirement once they have 20% equity in their home. FHA borrowers must continue paying premiums until the loan is paid off.
The National Association of Realtors welcomed FHA premium reductions in 2023 and supported ending the FHA loan requirement deadline, but did not respond to Inman's request for comment Friday.
An industry group representing private mortgage insurance companies suggested that policymakers take a cautious approach to further lowering FHA premiums to ensure the program is sustainable in the event of another housing downturn.
“The FHA plays an important countercyclical role in the U.S. housing finance system and must maintain strong capital to perform this important function,” Seth Appleton, president of the mortgage insurance company, said in a statement. No,” he said.
Seth Appleton
“Taxpayers bear 100% of the credit risk on FHA-insured mortgages, but private capital is in the first position to lose out on low down payment loans backed by private mortgage insurance,” Appleton said. Ta. “Policymakers therefore need to ensure a consistent, transparent and coordinated approach to housing policy, so that wherever possible private capital is protected from credit risk ahead of taxpayers. be.”
The FHA program is supposed to be self-sustaining, with insurance premiums collected from borrowers covering lender claims. HUD said in a report to Congress that if another economic downturn like the 2007 subprime mortgage crisis occurs, no further relief would be needed, but the MMI fund's capital adequacy ratio of 5.48% (still He said the amount would be twice as low as the legal minimum.
“This suggests that the MMI Fund has sufficient capital to withstand a significant economic downturn,” HUD said.
But the debate over where to set FHA premiums is also an ideological one.
Critics like Carson, who served as President Trump's housing secretary from 2017 to 2021, argue that the government's role in housing and housing finance should be more limited.
Mr. Carson's chapter on Project 2025 will raise FHA insurance premiums, end HUD's efforts to address rating bias and climate change issues, and provide grants to states and localities to build more affordable housing. They are calling for the abolition of the Housing Supply Fund, which provides housing.
Battle for market share
Private mortgage insurance companies compete with FHA and VA loan programs to serve homebuyers who cannot or do not want to make large down payments.
Fannie Mae and Freddie Mac require private mortgage insurance if homebuyers make a down payment of less than 20 percent.
During the Great Recession from 2007 to 2009, rising loan defaults and foreclosures led to a flood of claims and made it difficult for private mortgage insurers to write new insurance policies.
As a result, private mortgage insurers' market share plummeted from nearly 80 percent to less than 20 percent, according to data tracked by Inside Mortgage Finance and the Urban Institute.
Market share of FHA, VA, and private mortgage insurance companies
FHA MMI funds were also hit hard, with the Obama administration raising annual premiums on FHA loans from 50 basis points to 135 basis points from 2008 to 2013.
FHA's premium increases have allowed private mortgage insurance companies to regain some of the market share they lost in the housing crash. But once the FHA program regained footing and premium reductions were granted in 2015 and 2023, private insurers lost ground again.
Urban Institute analysts say last year's premium cuts have made FHA mortgages with private mortgage insurance more attractive than Fannie & Freddie mortgages, which allow most borrowers to make a down payment of less than 5%. concluded.
The premium reductions will also save the roughly 1.2 million borrowers who took advantage of them an average of $453 a year, resulting in savings of $5.1 billion over 10 years, HUD said in its annual report to Congress. .
More than 8 in 10 (82%) FHA-backed purchase mortgages last year were taken out by first-time homebuyers, according to HUD. In 2023, FHA did more than twice as many transactions with Black borrowers (16.7%) and Hispanic borrowers (22.8%) as with other markets.
julia gordon
FHA Administrator Julia Gordon said in a statement: “We are committed to helping FHA advance homeownership and wealth-building opportunities for hundreds of thousands of families while maintaining a financially sound Mutual Mortgage Insurance Fund. “Through our work, we have demonstrated that we can help homeowners facing these challenges.” .
FHA's severe delinquency rate (the percentage of mortgages in its portfolio that are 90 days or more past due) was 4.15% as of September 30, which is “in line with interest rates before the start of the COVID-19 pandemic.” ” HUD noted.
Mortgage delinquency status by loan type
However, a Nov. 4 Mortgage Monitor report from ICE Mortgage Technology noted that delinquency rates for some types of loans are rising due to factors such as rising interest rates, hurricanes, and slowly increasing unemployment rates. .
The biggest increases were in delinquent veterans (up 24%) and FHA (up 9%), ICE reported.
The delinquency rate for loans backed by the GSEs (Fannie Mae and Freddie Mac) remained virtually unchanged, while the delinquency rate for portfolio mortgages made by private lenders was down 3% from a year ago.
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