A day after the White House announced plans to cut the Federal Housing Administration's (FHA) mortgage insurance premium by 50 basis points, politicians and commentators are still wrestling with the reduction's potential impact on the housing market, the mortgage insurance industry, and the agency itself.
As expected, the most positive reactions to the news came from the trade groups who have been pushing for FHA to lower premiums now that its loan insurance fund is back in the black. The agency had raised its annual premiums to 1.35 percent to help replenish the fund after it fell into negative territory following the default crisis.
The White House and HUD estimate that the reduction will save the average FHA borrower $900 annually.
"We are optimistic that more affordable FHA loans will have a positive impact on first-time buyers who have been entering the market at a lower than normal rate," said Chris Polychron, president of the National Association of Realtors, in a statement. The group estimates that nearly 234,000 creditworthy borrowers were priced out of the housing market last year as a result of the higher premiums.
Speaking for the Mortgage Bankers Association (MBA), chairman and CEO Bill Cosgrove offered a similarly hopeful response:
"As an independent mortgage banker whose business includes a significant amount of FHA lending, I can attest that the 50 basis point reduction in FHA's annual premium will have a significantly positive impact for my borrowers and the housing market," he said. "Given the timing, just as we begin the spring home buying season, I think today's announcement is just what the market needs."
Less enthusiastic about the news were private insurers, who stand to lose some of the market share they gained in the last few years as FHA loans became more costly. Shares were down for mortgage insurers following Wednesday's announcement. (On the other hand, stocks were up for homebuilders on predictions that the change could spur increased demand for new housing.)
U.S. Mortgage Insurers (USMI), a trade group representing some of the country's largest insurers, called for policymakers to "proceed cautiously," citing the fund's still-fragile status and FHA's stated objective to reduce its presence in the mortgage market.
"Mortgage insurers putting their own capital risk should be preferred to government risk taking, consistent with the principles put forward by the Administration for housing reform," USMI said. "The MI industry has the capacity and capability to further reduce taxpayer risk and lower costs for many home buyers while expanding access to mortgage credit."
Attempts to reach out directly to several mortgage insurance firms were unsuccessful.
Republicans in both the House and Senate were also quick to decry the news, especially with it coming so soon after FHA took its first-ever taxpayer bailout. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, pledged to bring HUD Secretary Julian Castro before the committee to question him on FHA's financial condition and the thinking behind the move.
Finally, the announcement brought out a fair share of skeptics, who were particularly doubtful about the Obama administration's claims that the fee reduction will help nearly a quarter of a million borrowers purchase their first home in the next three years.
Brian Koss, EVP at the East Coast-based Mortgage Network, said he is hopeful about the potential boost to FHA business at his firm but uncertain about the supposed impact the administration says the cut will have.
"We don't see it having that big of an effect," Koss told MReport. "It's not a difference that's going to make someone say, 'I wasn't going to buy, [but] now I'm going to.'"
The real effect, Koss said, will be on Americans who have been considering purchasing a home but were previously unsure about their buying power.
"It really helps that person just make one more higher bid if they're competing on a home or maybe get the extra bedroom," he said.