FHA to Try Again on Risk-Based Pricing

The Federal Housing Administration "in the next few days" will announce a new proposal to introduce risk-based pricing, saying it is "unfair" to balance the long-term viability of the insurance fund on the backs of its lowest-income borrowers. "It's counterintuitive, but working-class families with FICO scores of 680 and above and which have saved for years for a downpayment have our lowest default rate," FHA Commissioner Brian Montgomery said at the Mortgage Bankers Association's National Secondary Market Conference in Boston. "We want to give those families a little price break." The FHA's first attempt at switching to risk-based pricing was pulled amidst a flurry of negative comments and opposition on Capitol Hill. But Mr. Montgomery said the new rule "will be more benign," including not as much of a discount to the least risky borrowers. "We're no longer going to 75 basis points," the FHA commissioner said. "There was concern from the private mortgage insurers that we were intruding into their realm. That was never our intent, but we will offer a little less of a discount." Mr. Montgomery said risk-based pricing has to be the "price of admission" if the FHA is forced to continue taking loans with seller-funded downpayments, which have a default rate three times the norm but are making up a larger and larger share of its portfolio.