FHA's Galante Offers Alternatives to Rolling Back MI Premiums
The Department of Housing and Urban Development is pushing back against industry groups calling for the Federal Housing Administration to reduce or rebalance its mortgage insurance premiums.
"Now is not the right time to do a wholesale rollback of mortgage insurance premiums," FHA Commissioner Carol Galante told a group of mortgage bankers on Wednesday. "We have a long to go to meet our statutorily required 2% capital reserve ratio."
Three industry groups have urged FHA to rebalance its 1.35% annual MI premium and its 1.75% upfront MI premium to make FHA loans more affordable. But such a change would reduce FHA revenue.
The commissioner stressed that it's important to strengthen the FHA single-family mortgage insurance fund and find other ways to increase access to credit. "We must do both," she told attendees at the Mortgage Bankers Association's Washington Policy Conference.
HUD is moving ahead with a housing counseling program called HAWK (Homeowners Armed with Knowledge) that will reward FHA borrowers that receive counseling. "That means lower upfront MI premiums at closing and a permanent reduction in the annual premiums after several years or both," Galante said. She indicated that the details of the HAWK program will be announced very soon.
"Housing counsel in our mind is very important. We know the borrowers who receive counseling are up to 30% less likely to default on their mortgage than buyers who don't," she said.
The FHA is also working on creating a new performance measure that might reward lenders for extending credit to lower-score borrowers.
Lenders have been complaining for some time that a compare ratio FHA currently uses to measure lender performance leads to conservative underwriting in an environment where credit is already tight.
"We have heard loud and clear from lenders," the FHA commissioner said, that the compare ratio has resulted in a "race to the top" in terms of credit quality.
"FHA is coming up with another performance metric that is maybe more sensitive to bucketing by credit scores for example," she said. "We will be ready to speak about the specifics of this fairly soon."