Good Job HUD (Told ya So!)
Back in 2014, I was pretty hard on HUD in regard to the FHA loan program. Annual PMI premiums at the time were 1.35% (a ripoff) and I felt it necessary to voice my opinion on the topic more than a few times. In 
October, I wrote a mathematically driven blog about the cost of FHA loans and the correlation of loan volume in the program (you can read it here if you so choose). The gist is I thought FHA reducing the cost of their loan program for borrowers would in turn attract more borrowers, and more profits for HUD - an obvious win-win in my mind.
HUD's argument for higher fees was that they needed more money. As every good businessperson knows, though, there's more than one way to skin that cat. Volume can oftentimes more than compensate for cost, and I thought FHA was a prime example.
Well the numbers are in. In an article I recently read, it was cited that 686,800 loan applications were submitted February thru May of this year versus 346,600 for the same time last year. For the sake of argument, let's say the numbers doubled (close enough?). On a $200,000 loan, a borrower would pay $1700/year under the current PMI premiums VS $2700 based on the premiums a year ago. HUD is losing quite a bit on each deal, but in doubling the volume HUD's annual profits should be up in the ballpark of 20%. So while I like to rip HUD a new one when I think they get it wrong, I want to acknowledge that they made the right move, and it's having real impacts.
Our economy is still fragile, with the housing industry playing a huge role in our recovery. I thought FHA lowering their premiums would have an impact on refinances, but more importantly, would bring more first time buyers to market, and thankfully it's played out that way exactly. Home purchase applications using FHA financing are up nicely, and the program is once again helping people enter the housing market.
If estimates pan out, HUD should endorse 50% MORE than their most recent projections for the amount of loan volume they endorse (read: 50% more profit for them, too), and as a bonus, FHA's serious delinquencies have fallen to their lowest level since 2008 (the start of the foreclosure crisis), and foreclosure rates are the lowest since 2009 (when those 2008 delinquencies were finally foreclosed).
What's this all mean? Well, it may seem like in giving an inch I want a yard, but I think as profits increase and delinquency falls, HUD can and should start to look at getting back to it's core goal of increasing access to home financing for low to moderate income borrowers. In the not-so-distant past, annual PMI costs were just .55% (.3 lower than current levels) of a borrowers loan amount, and eventually it would be a good idea for HUD to return to those levels, bringing the product back to it's place as one of the most affordable mortgage options available. This would spur refinance activity (always an economy booster) and grant even greater access to home ownership for buyers. If HUD can focus on enforcing quality underwriting standards, all of these improvements should be able to continue.
So with that, GREAT JOB HUD. The results are in, and the results are good - now let's keep working on improving our housing market by continuing in the same direction.
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