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FHA Strong Enough for MIP Cut

Is now a good time for FHA to reduce hurdles to home ownership with a lower mortgage insurance premium?
The National Association of Realtors (NAR) says yes, but the Trump administration and some members of Congress aren’t so sure. On Inauguration Day, the U.S. Department of Housing and Urban Development suspended a planned reduction in the FHA premium saying in a letter to mortgage lenders that “more analysis and research are deemed necessary.”
The quarter-point reduction had been announced in the waning days of the Obama administration and was scheduled to go into effect on Jan. 27, 2017. It would have been the second premium reduction in two years, after five successive increases in the MIP, starting in 2010, put in place to shore up FHA’s flagging reserve fund.
During the housing crisis, higher-than-normal defaults drove the agency’s reserve fund below the congressionally mandated 2 percent. the agency must have excess reserves of 2 percent in its mortgage insurance fund to cover short-term losses in its portfolio. That’s over and above the 30 years of reserves FHA maintains on all the insurance in force in the fund. The requirement is much higher than the reserve requirement for private lenders. By January 2015, when FHA reduced the MIP by more than 35 percent, the excess reserve was back above 2 percent. It’s now above 2.3 percent.
The planned quarter-point decrease would have saved buyers an average of $500 a year, reducing costs for 750,000 to 850,000 home buyers, NAR President Bill Brown said in a Jan. 30 letter to Ben Carson, the Trump administration’s HUD secretary nominee. In the letter, Brown said suspension of the premium reduction had created uncertainty and confusion for borrowers, sellers, lenders, and underwriters.

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