Lenders Use Budget Data to Lobby FHA for Lower Premiums

The Community Home Lenders Association is pointing to President Obama's recently released budget as proof that the Federal Housing Administration has leeway to lower premiums.

The budget, released Tuesday, said that due to high premiums and falling delinquency rates, the FHA would earn a 7.25% profit on each single-family loan it insures in fiscal year 2014 which ends Sept. 30, 2014. In the 2015 fiscal year, profitability is projected to hit 9% over the life of an FHA-insured loan, the Office of Management and Budget said.

Overall, the budget said the FHA would collect $10 billion in revenue for fiscal year 2015.

But Community Home Lenders Association executive director Scott Olson claims the 9% profit is "excessive" and the FHA could reduce its 1.35% annual premium, which has historically averaged 55 basis points.

"Under our proposal, you could reduce the fee to 75 basis points and they would still make a 7.25% profit," Olson said. 

Such a reduction would make FHA loans more affordable for homebuyers, he said.  

OMB estimates that FHA receipts in fiscal 2014 will total $10.2 billion. 

FHA purchase mortgage originations have been shrinking over the past several years from 777,520 in fiscal 2011 to 702,420 in fiscal 2013. In fiscal year 2010, before the first major hike in the annual premium, the FHA endorsed 1.1 million purchase mortgage loans.

FHA officials are looking to reduce mortgage insurance premiums, but not until fiscal 2015 and only for borrowers that complete housing counseling.

The Community Home Lenders Association is urging the FHA to act more quickly because the high annual premium directly increases the borrower’s debt-to-income ratio and reduces their chances of getting approved for a loan.

"We think it is time to ease up on the heavy annual premiums that are becoming a drag on home purchase affordability," Olson said.

Many lenders and Realtors view the high loan fees charged by the FHA, Fannie Mae and Freddie Mac as obstacles for the housing recovery, according to mortgage consultant Brian Chappelle.

New FHA loans are performing better than any originated in the past 30 years. "Yet the FHA is charging fees that are two times higher than in 1990s," Chappelle said.

Meanwhile, lenders are concerned about a new budget proposal to charge a $25 fee to improve the FHA’s loan quality reviews.

"Anything that gets passed on to consumer is not good," Olson said. "But the focus shouldn’t be on a $25 fee per loan.  It is much more important to focus on these premiums. Under our proposal, homebuyers would save thousands of dollars over the life of the loan," he said.

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