A bill with broad-based industry support involving Federal Housing Administration (FHA) mortgage insurance premiums has been introduced in the House of Representatives.
The bill, titled the Making FHA More Affordable Act, was introduced by House Financial Services Committee Ranking Member Maxine Waters (D-Calif.).
It has the backing of a number of real estate trade associations, including the National Association of Realtors (NAR), the National Association of Real Estate Brokers (NAREB), the Community Home Lenders Association (CHLA), the National Consumer Law Center (NCLC), the National Housing Conference (NHC), the National Community Reinvestment Coalition (NCRC), the California Reinvestment Coalition (CRC), and the National Association of Hispanic Real Estate Professionals (NAHREP).
The bill would repeal the current requirement that borrowers pay mortgage insurance (MI) premiums for the life of the loan and reinstate FHA’s previous policy of ending MI premiums when the loan reached 78 percent of its original value.
“Families who take out home loans through the Federal Housing Administration (FHA) should not be unnecessarily burdened with mortgage insurance premiums for the life of the loan,” Waters said in a press release. “My bill would remove this unfair requirement for FHA borrowers and help to make mortgages more affordable for hardworking Americans.”
The move would bring FHA back in line with the private MI industry. FHA changed to life of the loan premiums in June 2013.
“Low and moderate-income homebuyers often look to FHA, but policies like the ‘life of loan’ mortgage insurance make it harder for those creditworthy buyers to close the deal,” NAR President William E. Brown said in the release. “Lifetime mortgage insurance requirements also encourage strong borrowers with substantial equity in their home to refinance into a conventional mortgage product. That represents a missed opportunity to further strengthen the FHA portfolio.
“This legislation will take unnecessary burdens off the backs of homebuyers who look to FHA for a mortgage. Realtors know that’s good for consumers and the housing market broadly, and we thank Congresswoman Waters for her leadership on this important issue.”
FHA said its reason for changing the policy in 2013 was to strengthen the Mutual Mortgage Insurance Fund (MMIF), which had dipped below the statutorily mandated capital ratio of 2 percent in the wake of the housing crisis.
“But FHA borrowers did not cause the housing crisis, and they should not be required to pay for the wrongs of the private companies that did,” a summary of the bill stated.
“Returning to a more reasonable FHA premium policy is the right move now that home prices and mortgage markets have stabilized and the FHA’s financial position is strong,” National Housing Conference acting CEO Ethan Handelman said in the release. “It helps homeowners build wealth and save for the future, so they’ll be better prepared for the next economic downturn.”
Although FHA borrowers still have the option to refinance their loans once they reach the 78 percent threshold to avoid unnecessarily paying annual premiums, refinancing involves substantial transaction costs that not all families can afford, the summary stated.
“Moreover, the FHA has since reached and exceeded the capital ratio requirement, and the most recent independent actuarial study showed that the FHA is in strong financial health, has been improving for the past few years, and is on a strong trajectory moving forward,” the summary stated. “It is time that we reverse the FHA’s policy of charging premiums for the life of the loan so that borrowers are not unnecessarily burdened with premium costs.”