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FHA Spared Immediate Premium Hikes Under Reform Bill

DEC 26, 2013 1:37pm ET
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A Federal Housing Administration reform bill approved by the Senate Banking Committee does not require the agency to increase premiums over the next few years.

The bill (S. 1376) approved by the committee last July requires the FHA mutual mortgage insurance fund to reach a capital ratio of 3% in 10 years. The FHA mutual mortgage insurance fund currently has a negative 0.11% capital ratio.

The bill also requires FHA to impose a 10 basis point surcharge if the fund does not reach an interim capital ratio of 1.25% in fiscal year 2016.

The Congressional Budget Office estimates FHA will charge borrowers sufficient insurance premiums to exceed the 1.25% in the next couple of years. “So we expect that FHA would not impose a 10 basis point surcharge in 2016,” CBO says.

However, reaching a 3% capital ratio will be tougher.  “CBO expects that FHA would probably increase its initial and annual insurance premiums beginning in 2018 in order to achieve a 3% capital ratio in the MMI fund by 2023,” CBO says.

Due to these premium increases, the FHA reform bill would decrease government spending by $512 million.

Senate Banking Committee chairman Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, co-sponsored the FHA reform bill.

“The Congressional Budget Office’s estimates show that we can strengthen the FHA while decreasing our federal deficit,” Crapo says.

“Congress should move as soon as possible to comprehensively reform the FHA and our country’s broader housing finance system.”

Comments (1)
This is great news.

The Fund made a 15B turn around so why change ANYTHING until it's 100% solvent? I understand the government wants to lower FHA's exposure and foot print but why change anything until the Fund is at 3% or higher?

Carol Galante's letter to Congress earlier this month boasted how more than 610K homeowners took advantage of historically low rates, but she failed to mention how the new 1.35% MI primium prohibited probably another 600K from doing streamline refinancing into another FHA loan during the second half of the year. This problem could have been overcome by allowing existing FHA borrowers to qualify for streamline refinancing under the MI factor they had when they took out the loan. This would have been a win/win for both borrowers and the Fund. The Fund would have experienced another 500K to 1B turnaround if FHA didnt put up the Berlin Wall in the middle of the year. By requiring current FHA borrwors to qualify for a streamline refinance with the 1.35% monthly mortgage insurance premium generated 100% of nothing because hundreds of thousands of borrowers who were upside and have been making their mortgage payments on time for the past 12 months didnt qualify to refinance.

A little common sense goes a long way to help solidify the Fund and more importantly help homeowers lower their rates and monthly payments.
Posted by David H | Thursday, December 26 2013 at 4:03PM ET
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