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Lobbyists haven't given up on FHA insurance cut

Housing lobbyists continue to push the Trump administration to reinstate a planned cut to the annual insurance premium on Federal Housing Administration (FHA) loans.

In recent letters to Trump officials, the National Association of Realtors (NAR) and nonbank trade group the Community Home Lenders Association (CHLA) asked the new administration to allow for a 25 basis point cut on most FHA loans and also requested other changes that would likely expand the government-guarantee program.

FhainsanceShortly after President Donald Trump was sworn into office, FHA’s overseer the U.S. Department of Housing and Urban Development (HUD), suspended indefinitely a late move by the Obama administration to cut the annual FHA insurance premium.

“Yes, we think it still has a chance,” CHLA’s executive, Scott Olson, told Scotsman Guide News on Tuesday.

“Our current focus is on communicating to the administration, as they conduct a review of FHA, what we believe is a strong case that borrowers are being overcharged and that the FHA [insurance] fund is sound,” Olson added.

In their separate letters, CHLA and NAR also urged the new administration to end a requirement that borrowers hold FHA insurance for the life of the loan on most loans. Both groups also have urged the administration to make other moves to encourage FHA lending, such as easing up on the potential penalties against lenders when FHA loans default.  

CHLA’s position is that the FHA loan program is projected to net over $9 billion in fiscal 2017 at a time when the insurance fund has been sufficiently replenished, so borrowers are, in effect, being overcharged. The FHA insurance fund exceeded its capital ratio requirement of 2 percent for the second consecutive year in fiscal 2016 ending Sept. 30. In their letters, CHLA and NAR both pointed out that the forward-loan FHA portfolio, which excludes reverse mortgages, had a healthy reserve ratio of more than 3 percent. FHA loan delinquencies have also dropped to a 10-year low.

In its letter, NAR said the annual premium cut would have reduced costs for 750,000 to 850,000 borrowers this year and made homeownership possible for 30,000 to 40,000 new borrowers. NAR also argued that the last premium cut in early 2015 helped “shore up” the insurance fund by attracting and retaining “better borrowers” and expanding volumes.

Not everybody believes that another FHA insurance cut is a good idea. The U.S. Mortgage Insurers has argued that another reduction would steer borrowers away from conventional loan programs offered by Fannie Mae and Freddie Mac that are partially insured by private insurers. The trade group says that the FHA’s market share, which grew rapidly after the Great Recession, should be scaled down. 

Recently, the conservative leaning American Enterprise Institute’s International Center on Housing Risk and the progressive leaning Urban Institute both took the position that an FHA insurance cut wasn’t needed at this time. 

The Independent Community Bankers of America (ICBA) has not actively lobbied against another insurance cut, but doesn't believe it is a good idea. ICBA Senior Vice President Ron Haynie said that focus should be on building up the insurance fund. 

"In general, we don’t think it is the most prudent move in managing the fund," Haynie said. He also said its doubtful another cut would help that many people. 

"It is only going to help those borrowers that are really on the margin, right at the border line of qualifying or not qualifying," Haynie said. "So, those are typically your higher-risk borrowers. Again, managing that insurance fund, getting that fund up a lot higher, is probably the more prudent thing."  

The other mortgage trade groups generally supported the insurance cut when it was announced by outgoing HUD Secretary Julian Castro on Jan. 9. Other banking and mortgage trade groups have been less vocal since the cut was suspended by the Trump administration.

Glen Corso, executive director of the Community Mortgage Lenders of America, said the trade association has taken no position on whether the administration should reinstate the cut. The Mortgage Bankers Association (MBA) haven't issued any statements since Jan. 20, where it took no position on whether the cut should be reinstated, but said that the administration should be sensitive to policy changes that might disrupt borrowers and lenders. 

This story was updated from its original version with comments from the MBA and ICBA. 



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