FHA Turns Profit, NAR Urges Loan Changes

The Federal Housing Administration is back in the black. After two years posting steep losses, the government insurer of home loans has seen its insurance fund climb to a profit, and the agency will no longer require emergency bailout money from the government. However, the agency says it has no plans to lower the cost of its loans.

The housing crisis, which saw the number of mortgage defaults skyrocket, left the FHA bleeding money for years. In 2012, its insurance fund was estimated to be in a debt of $16.3 billion. FHA took cash draws from the U.S. Treasury in order to counter the steep losses.

Since then, the agency has taken action to beef up its reserves, most of that coming at higher costs to consumers. FHA has more than doubled its annual insurance premiums and raised the average credit score it requires of borrowers. Its mortgage insurance fund has risen by $21 billion in the past two years, now profiting $4.8 billion, and the agency is projected to reach the government-mandated capital reserve ratio of 2 percent by 2016.

“FHA has taken several prudent actions to improve the fiscal health of the fund, and those actions have led to the stronger position that we’re in today,” Julian Castro, U.S. Secretary of Housing and Urban Development, told reporters Monday.

However, FHA has seen a significant drop in its volume of loans due to their higher costs. Castro declined to comment on whether FHA would consider lowering its annual premiums now that the agency is posting a profit again.

“We’re confident that the fundamentals of the fund are strong. The volume is down, there’s no question about that, but we are confident of the continued health of the fund going forward,” said Castro.

FHA fees make up nearly 25 percent of a monthly mortgage payment. The National Association of REALTORS® estimated that nearly 400,000 creditworthy borrowers were priced out of the housing market in 2013 because of high FHA insurance premiums.

NAR continues to urge FHA to decrease its higher fees.

“Now that the [FHA] MMI Fund is on a path to recovery, NAR urges FHA to lower its annual mortgage insurance premiums and eliminate the requirement that mortgage insurance be held for the life of the loan,” NAR said in a statement. “Achieving home ownership has become more difficult with current FHA mortgage insurance premiums. … By lowering its fees, FHA could provide greater access to home ownership for historically underserved groups.”

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