A Realtor and lender Post It appears that lower FHA Premiums are on the horizon, learn why... Be ahead of the curve and let your prospects know so they view you as the expert. In November FHA said its Mutual Mortgage Insurance Fund (MMI) had returned to solvency. The fund had fallen below the Congressional mandated requirement that it maintain capital reserves representing 2% of its outstanding mortgage guarantees after the Great Recession and Financial Crisis. HUD said that the Fund now stands at $4.8 billion with a capital ratio of .41 percent. While it is still a ways from its required position, it no longer needs to seek funds from the U.S. Treasury. HUD has updated its projections and are predicting the fund will be at its required 2% reserve position by 2016. If they were to lower their premiums, this will take longer, but more people could buy homes, potentially offsetting this concern through volume. Researchers from the Urban Institutes Metro Trends write; Why, if the fund is so improved, are its insurance premiums at record high levels. (Its) Time to stop overcharging todays borrowers for yesterdays mistakes. Their analysis, they say, indicates that FHA could significantly lower its premiums, charging a more appropriate fee for risk, while continuing to build the necessary reserves against losses. The current high premiums penalize current borrowers for the pricing and performance of earlier loans and for problems experienced in the so-called reverse mortgage program. These are the primary causes of FHAs ongoing inability to reach the 2 percent reserve ratio, not any deficit in the current loan vintages. FHA was designed to be self-funding through premiums paid by mortgage borrowers into the MMI in return for the agencies guarantee of their loans. The fund ideally will be sufficient to cover losses in the event of borrower defaults. During the housing collapse and subsequent recession projected claims against the fund began to outstrip its projected revenue so FHA took steps to tighten its standards for guaranteeing loans and raised its fees. Researchers from the Urban Institutes Metro Trends also wrote; That MMIs failure to keep to the 2013 projections was driven by negative revisions to the economic value of the Home Equity Conversion Mortgage (HECM) book, poor performance of loans made before and during the financial crisis, and a shortfall in revenues driven in part by todays higher premiums. If FHA were to insure $135 billion in loans in 2015 as it did in 2014 this would lead to a profit of $6.8 billion. FHAs median FICO score at origination climbed from around 645 in 2007 to about 700 in 2007 and is now at 684. FHA has indicated it wishes to move its book of business somewhat lower, to include more 620-680 FICO borrowers and fewer with scores over 680. This would raise the losses to 5.6 percent resulting in a profit of $5.7 billion. If the FHAs ultimate goal is to break even each year, there is room for a significant cut in premiums. Even if it takes on a greater number of higher risk borrowers and thus higher losses it could cut annual premiums in half, to 0.65 percent, and still break even. This without even considering the lure of lower premiums for higher credit score borrowers. The MMI fund now stands at $4.8 billion where it is mandated to be at $23 billion. Source: Mortgage News Daily
Posted on: Thu, 08 Jan 2015 01:49:41 +0000
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