Although no one knows (quite yet) the details of the looming FHA audit, mortgage bankers are certain that if the fund goes negative it will result in a premium increase for consumers.
“I think it’s reasonable to expect that premiums will rise,” said one Washington-based consultant close to the issue.
Currently, the upfront premium is 175 basis points, the annual 125 bps. The audit is expected to be released publicly before the weekend.
“I’m sure hiking the premium is on the table,” said one former trade group official, requesting his name not be used. “But if you hike the annual it will make it tougher for more people to qualify for loans.”
Brian Chappelle of Potomac Partners notes that even if the audit shows the FHA insurance fund going negative, “they’ll have enough cash reserves on hand to make claim payments.”
In fact, according to Chappelle, the fund has something like $30 billion in cash.
The talk of the fund going negative is tied to assumptions FHA makes on where home prices are going in the years ahead–and how large future claims payments might be. In other words: How fast will the cash cushion be used up and at one point will FHA need to tap a line of credit it has with the U.S. Treasury?
One lobbyist close to FHA told National Mortgage News that “a few payments from lawsuits and premium hikes might solve the problem.”
At the end of September, FHA had outstanding guarantees on $1.3 trillion of home mortgages–a record.
As reported by NMN this week, FHA ended fiscal year 2012 with 739,000 single-family loans that were 90 days or more past due, a 16% jump from FY 2011.