Second Attack on FHA Mortgage Insurance Fees

Another group of mortgage lenders has contacted HUD Secretary Julian Castro, urging him to lower the FHA mortgage insurance fees.  In a letter dated December 18, 2014, Bill Cosgrove, Chairman of the Mortgage Bankers Association, indicated that, "MBA thinks mortgage insurance premiums are counterproductively high and recommends that they be reduced to better serve borrowers and meet FHA’s stated policy objectives".  I recently posted a blog in which I outlined a letter sent by a group of Senators to Mr. Castro also urging him to lower FHA mortgage insurance fees.

My previous post indicated that based upon the annual report released by FHA for fiscal year 2014, the Mutual Mortgage Insurance Fund stood at $4.8 billion.  The MBA estimates that with lower fees and an increased volume in business that would result from lower fees, the FHA Mutual Mortgage Insurance Fund balance could been almost twice as much as it actually is.

The MBA cites the new 3% down payment loans by the GSEs as being a real threat to FHA and its business unless the MIP fees are lowered.  The products offered by the GSEs are much more affordably priced than the FHA products today.  As AR member George Souto  commented recently, it is not so much the up-front fee charged by FHA that is the problem, but the annual insurance fees that are wreaking havoc on home buyers.  Home buyers are not able to meet DTI ratios as a result of the higher fees charged by FHA. 

Currently, the up-front fee by FHA (which can be rolled into the mortgage amount) is at 1.75% of the loan amount.  Annual fees are 1.35% for loans with LTVs equal to or greater than 95% and at 1.30% for loans with LTVs less than 95%.  These rates are notably higher than private mortgage insurance.  And, FHA requires the insurance for the life of the loan as opposed to conventional loans which allow the borrower to request the lender to drop the mortgage insurance when the LTV falls to 78% of less.

We need to let the FHA and Congress know that FHA fees are stifling the rebound of the mortgage market and in fact are harming the FHA itself as they cause a lower market share which may decrease even more as the 3% down payment loans offered by the GSEs take off.  You can find the contact information for your congressional representatives at http://www.contactingthecongress.org/  Contact information for HUD and FHA officials can be found at http://www5.hud.gov:63001/po/i/netlocator/http://www5.hud.gov:63001/po/i/netlocator/  Congress, HUD, and FHA needs to hear from you so that we can improve credit availability for home buyers!