More calls from the mortgage lending industry for FHA to reduce their annual mortgage insurance premiums. This one comes from the Community Home Lenders Association (CHLA) (MIP Cut).
Who is the CHLA and why do they want another FHA premium cut? The CHLA is a national non-profit association of community-based mortgage lenders who, among other things, promote policies to help increase affordable mortgage options to assist home buyers and homeowners. You can learn more at www.communitylender.org.
CHLA believes that with the recent increases in FHA insured loans paying into the FHA insurance fund at the higher initial premiums, and with current FHA loans performing much better since the 2008 debacle, the current annual premium rate of 0.85% could be reduced another 30 basis points, to 0.55%.
Their rationale is that the increased funds flowing in from the prior rate cut, coupled with fewer claims, have increased the fund to a point where it may soon reach the required 2% reserve. This cut, they say, will help to provide more affordable financing to qualified consumers looking to buy a home.
However, with the increase in FHA business, the total volume of insured FHA loans continues to increase. This in turn increases the base for determining the 2% reserve. It’s a little like a cat chasing its tail. Hopefully, in the case of the FHA, the fund it will catch up.
I believe it will, and when it does, the potential for an additional cut will exist, as long as the recently originated FHA loans, and those currently being insured, continue to perform at the current levels. This will put less of a strain on the fund allowing it to grow faster to the required level for reserves. The question is…when? I leave that answer to those much more qualified. I am sure they will vary.
By the way, CHLA also wants FHA to bring back the automatic premium cancellation when the loan pays down to a 78% LTV. What might that due to the fund? All that money projected from the lower premium, being paid over the extended period for loans recently insured, would not be realized. That will affect the bean counters analysis of “if and when” they believe the fund will be solvent enough to cut the rate. Stay tuned…
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In the meantime, please continue to originate quality FHA loans. The future of the fund depends on it.