As readers of this blog likely know, MBA has been laser-focused on issues of housing affordability for years. This attention has only grown more urgent in the face of rapidly rising interest rates, inflation at 40-year highs, and home-price growth continuing to outpace wage growth. These concerns are particularly important to low- to moderate-income borrowers, who predominantly are served by FHA-insured loans. To help make FHA loans more affordable, MBA continues to support a reduction in the FHA Mortgage Insurance Premium (MIP) set by HUD.
The MIP is the fee paid by borrowers for the insurance to protect FHA should a borrower default on a loan. The MIP contains two components – a 1.75 percent upfront charge paid at closing (and usually financed in the loan amount) and, for most borrowers, a 0.85 percent annual charge that is collected as part of the monthly payment for the life of the loan. This pricing structure has been unchanged since 2015.
Despite the challenges associated with the COVID-19 pandemic, the past few years have seen FHA develop a much larger financial “cushion” in its insurance fund. This robust improvement is due to a strong housing market, careful underwriting by lenders, decisive actions by government and industry actors to help borrowers remain in their homes, and prudent risk management by HUD leadership across political parties and administrations. Last November, in response to FHA’s latest annual report to Congress on the health of its insurance fund, I remarked that, “With the combined Fund capital ratio now at 8.03 percent, it is appropriate for HUD to expeditiously examine reductions in FHA mortgage insurance premiums, which have been at their current levels for nearly seven years.”
At that time, I noted that with several hundred thousand FHA borrowers still in forbearance, it was prudent for HUD to carefully monitor and assess how successfully those borrowers were exiting forbearance. That data is now in.
Continue reading →