FHA Cuts M.I. Premiums

For four consecutive years, the capital ratio for the Federal Housing Administration’s Mutual Mortgage Insurance Fund has improved.

Data from the Department of Housing and Urban Development indicate that the MMIF
has gained $44 billion in value since 2012.

The fund’s capital ratio currently stands at 2.32 percent, above the congressionally mandated 2 percent.

With the MMIF’s health in much better shape than at any time since the financial crisis, HUD has decided to cut M.I. premiums on FHA-insured loans.

On Monday,
Mortgagee Letter 2017-01 was issued indicating that annual premiums on most new loans will be reduced by 25 basis points.

The average FHA borrower is expected to save $500 a year from the reduction.

“FHA’s action reflects today’s risk environment and comes at the right time for consumers who are facing higher credit costs as mortgage interest rates are increasing,” HUD’s statement said.

Mortgage Bankers Association President and Chief Executive Officer David H. Stevens, who previously served in the Obama administration as Federal Housing Commissioner, weighed
in on the move.

“The reduction in the premium is a result of our industry’s and FHA’s shared commitment to quality underwriting, and consumers will benefit as result,” Stevens said in a written statement. “Reducing the cost of FHA loans benefits borrowers, but other changes to reduce uncertainty for lenders would be required to truly invigorate the FHA program.”

National Association of Home Builders Chairman Ed Brady commended FHA and said lower premiums will help home affordability and “ease stubbornly tight credit conditions.”

National Association of Realtors
President William E. Brown issued a statement indicating that the lower premiums will help borrowers with high debt-to-income ratios — enabling “a whole lot more responsible borrowers” to qualify for an FHA loan.

But Brown said more steps are needed such as eliminating FHA’s life-of-loan M.I. requirement.