The debate rages on among the mortgage lending professionals and their respective trade groups. Should FHA again reduce their required mortgage insurance premiums? If so, should they reduce the upfront premium, the annual renewals, or maybe both? (FHA Cut).
Proponents of the additional rate cuts say that the prior actions to reduce the annual premiums helped make FHA loans much more affordable for more home buyers, especially first-time buyers. The new pricing also attracted borrowers carrying a higher credit score offering low down payment financing at affordable prices.
This was good for the consumer, the housing market, the lending community and FHA. The more loans insured at the lower premiums resulted in an increase in the funds flowing into the FHA insurance fund. A stronger fund means a stronger FHA, and its ability to continue to insure more loans.
On the other hand, some say that now is not the time for any further FHA premium rate cuts. The prior cut did bolster the FHA fund. Although, it did so only to a point slightly above the level required. Some of that was attributable to certain changes made by FHA to its reverse mortgage program.
The fear is the that the fund is still at a tenuous level. The economy is still a little shaky, especially in areas tied to oil and energy. Defaults by FHA borrowers in these markets, like those recently experienced in 2008, could be disastrous. Do we want to take that risk at this point?
So, this debate rages on. At present, FHA makes it clear that they are not considering a rate cut in the near future. However since this is an election year, and the markets ain’t doing so good, that could change in an instant.
President Obama made no real mention of any housing policy issues or changes in his recent State of the Union address. That may be a good thing as recent government intervention into mortgage lending has resulted in some real challenges, and increased costs, for both lenders and consumers. I’m not sure the industry can afford any more government assistance.
What’s your take?
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Regardless, if you’re making FHA loans then you owe it to yourself, the consumers and FHA to do them right. These loans must perform as intended to help contribute to a stronger FHA insurance fund and avoid defaults which could drain this same fund. Any possible improvement in the housing market, the economy and related mortgage lending depends on it.
Lend responsibly my friends.