Economist: 2008 Increase in FHA MIP Could've Helped

If the Federal Housing Administration had raised its annual mortgage insurance premiums by a modest amount in September 2008, its capital reserves would not have fallen below its statutory 2% minimum, according to a former Freddie Mac economist. "We found that a 20 to 25 basis point increase in the premium would have allowed the [FHA mortgage insurance] fund to meet its statutory capital requirement in fiscal year 2009," economist Ann Schnare told a congressional committee. FHA officials have asked Congress to raise the 55 bp cap on the annual premium so they can replenish the FHA fund's capital reserves. However, these same officials have not told Congress how high they want to raise it. "While we have not updated our analysis, we believe that something around" a 20 bp to 25 bp increase "would be appropriate today," she testified. She noted such an increase would bring FHA's pricing in line with Fannie Mae and Freddie Mac pricing. Ms. Schnare is a partner at Empiris LLC, a Washington economic consulting firm. In the 1990s, she was vice president for housing economics and financial research at Freddie Mac.