For the fourth year in a row, the health of the Federal Housing Administration’s flagship insurance has substantially improved, leading to renewed calls that the FHA should cut mortgage insurance premiums to ease the costs for FHA borrowers.
The Department of Housing and Urban Development recently released its 2021 Annual Report to Congress, which showed that the FHA’s Mutual Mortgage Insurance Fund had a much larger capital reserve than it did last year.
Under Congressional rules, the FHA MMI Fund must maintain a minimum capital ratio of 2% of its overall portfolio. In each of the last four years, the MMI Fund’s capital ratio has improved, beginning in 2018.
Last year, the MMI Fund’s capital ratio reached 6.1%, and it climbed even higher this year. According to HUD’s report, the MMI Fund’s capital ratio for 2021 is 8.03%, more than four times higher than its minimum threshold.
In fact, the FHA’s flagship fund has now been above its Congressionally mandated threshold in every year since 2015.
However, the FHA has given no indication thus far that it intends to make any reductions to its mortgage insurance premiums, the fees that borrowers pay both upfront and each month to have their mortgage insured by the FHA.
In April, HUD Secretary Marcia Fudge said that the FHA had no plans to cut mortgage insurance premiums.
Fudge gave no indications that the FHA will be cutting premiums this time around either.
“The strength of the fund is a promising sign and solidifies the important role FHA fulfills in making homeownership a reality for first-time homebuyers and those with lower incomes,” Fudge said in a statement.
“This year, our Administration took unprecedented steps to deliver relief to those devastated by the pandemic. Managing the strong fiscal health and performance of the FHA program is a top priority, and I am encouraged to see the MMI Fund remain resilient through the events of the past year,” Fudge continued. “Looking ahead, we will ensure FHA is well positioned to provide broad and equitable access to homeownership, especially for those who have been historically underserved in the mortgage market.”
However, some of the leading industry voices are renewing their calls to reduce FHA mortgage insurance premiums, based on the strength of the 2021 report.
One of those voices is the Mortgage Bankers Association, which said that HUD should “expeditiously examine” its premiums and consider cutting them.
“With the combined Fund capital ratio now at 8.03%, 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,” MBA President and CEO Bob Broeksmit said in a statement. “HUD should focus on pricing changes that have the greatest impact on affordability and sustainability for borrowers, such as reductions to the annual premiums, while being mindful of the current delinquency levels in the FHA portfolio and the elevated number of borrowers who remain in forbearance.”
Those sentiments were echoed by the National Association of Realtors.
"Realtors are encouraged by the robust progress in the FHA's book of business. The financial health of the FHA Mutual Mortgage Insurance Fund continues to improve, and the FHA's outlook is equally strong despite lingering concerns,” National Association of Realtors President Leslie Rouda Smith said in a statement. “FHA should begin to look at ways to responsibly help homebuyers with its excess resources, such as eliminating the life-of-loan feature of the mortgage insurance premium or instituting the Homeowners Armed With Knowledge (HAWK) program, while maintaining stability in the market.”
For reference, the HAWK program is a defunct HUD program that offered discounts to FHA borrowers on their mortgage insurance premiums if they completed housing counseling and other education.
Now, the housing industry waits to see if reaching a capital ratio of more than 8% is enough to compel the FHA to cut its premiums.