Budget May Propose Risk-Based Pricing for FHA

A legislative proposal that would allow the Federal Housing Administration to use risk-based pricing is expected to be included in the president's fiscal year 2007 budget, sources have told MortgageWire.The proposal would authorize the FHA to adjust mortgage insurance premiums on single-family loans on the basis of the borrower's credit score and other risk characteristics. "It would allow FHA to set premiums like all the other mortgage insurers," said one source who did not want to be identified. The Bush administration is expected to unveil the president's budget on Feb. 6. Conceptually, risk-based pricing would help the FHA compete for more creditworthy borrowers while still serving subprime borrowers. The FHA has been losing market share to conventional prime and subprime lenders for some time. In fiscal 2005, FHA mortgage insurance endorsements dropped by 46% to $62.3 billion. The FHA has a 20% share of the mortgage insurance market.