Now that the Federal Housing Administration’s insurance fund
has rebounded, some mortgage lobbyists say it’s time for the Obama
Administration to cut the FHA’s mortgage insurance premiums for the second year
in a row — but not all agree.
In the wake of FHA volumes and loan counts surging in 2015 rather than
suffering, some of the industry's largest trade groups say there is no good
reason to lower the premiums right now. Such a move, they say, will only
put added stress on the insurance fund, which unexpectedly saw its capital
reserves climb above the statutory minimum of 2 percent last year.
“There is no need to cut the MIP [mortgage insurance premium] at this point,” said Ron
Haynie, a senior vice president with the Independent Community Bankers of
America (ICBA). “There just isn’t. There is nobody saying that we can’t
qualify borrowers because of that.”
So far, the Obama administration has hinted that it won’t pursue another cut in 2016, a presidential election year where changes to the FHA loan program would be
politically controversial. FHA head Ed Golding
told reporters in November that nothing was on the table. Some trade
groups that are pushing for a cut are still holding out hope, however.
“I can’t handicap how likely it is that they would do this,
or how seriously they are looking at it right now,” said Scott Olson, executive
director of the Community Home Lenders Association, which lobbies on behalf of
nonbank lenders. “The last time there was no real public indication that they
were seriously looking at it.”
In January 2015, the administration announced it was
lowering the annual insurance premium by 50 basis points to 0.85 percent, a
move that originators say boosted interest in the program significantly. FHA loan counts rose
by 42 percent in 2015 compared to 2014. Reverse-mortgage counts also rose by
12.3 percent compared to the 2014 numbers.
Olson said the administration has no reason not to
lower the premiums. Credit scores of the average FHA borrower strengthened
slightly in 2015, and serious delinquencies declined to 5.86 percent, the
lowest level since last decade's financial crisis.
“The evidence from the last move was that it was extremely
successful in terms of creating more volume; that is, making loans more
affordable to borrowers,” Olson said. “We already know that this worked. The
second part of that is that the fundamentals of FHA are strong.”
Groups that support a cut want an additional 30 basis
points reduction to the annual premium, but some also would like a 25 basis
point cut in the upfront fee. These changes would bring premiums back to the precrisis level.
Community Mortgage Lenders of America Executive
Director Glen Corso said if FHA reduces its premiums, it may indirectly
strengthen the insurance fund by attracting more creditworthy borrowers. He
said higher premiums were driving people with stronger credit to look for
alternatives to the FHA, and therefore the program was attracting only the
“You have to be careful that you don’t raise your premiums
to the point where you are only getting the worst risks because they don’t have
anywhere else to go,” Corso said. “I don’t think that is the case now, but they
have to be cognizant of that fact always.”
Bad time for another cut?
Others say a cut would only put the insurance fund at risk.
Mortgage Bankers Association President David Stevens said a swing in the
FHA’s home-equity conversion mortgage program (HECM), also known as a reverse
mortgage, boosted the reserve to its required minimum level.
“Clearly the forward book is below the 2 percent capital
reserve threshold and HECM volatility these past several actuarial reports
should give pause to any short-term effort to move on premium which, in my
opinion, is the right strategy,” Stevens said in a prepared statement.
The ICBA’s Haynie said the fund is still in a weak
position at the minimum statutory level. He noted that the volatility of the
stock market and rapidly dropping oil prices are concerning. A downturn in the
economy or in a few states with oil-dependent economies might mean FHA defaults
could rise again.
“FHA mortgages typically have a higher delinquency rate than
conventional loans,” Haynie said. “It is a higher-risk product for borrowers
that are higher credit risk. I am not saying they are bad folks, but when
somebody loses their job, that is a tough one. If their job is a specialized
job having to do with the energy industry right now, that could be a big
challenge for some folks.”