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Realtors Urge FHA to Change Rules on Premiums

Updated to include a statement from HUD.

As the Federal Housing Administration (FHA) continues working to get its Mutual Mortgage Insurance (MMI) Fund back on its feet following massive losses sustained after the housing crash, Realtors are asking the agency to rethink its approach to shoring up its finances.

In a letter addressed Tuesday to FHA commissioner Carol Galante, National Association of Realtors (NAR) president Steve Brown says the administration’s decision to increase annual mortgage insurance premiums and to require mortgage insurance over a loan’s entire life are putting home purchases “increasingly out of reach for many qualified borrowers who rely on FHA financing.”

Both changes were instituted in early 2013 to help restore the agency’s mortgage insurance fund, which was revealed months before to be at a capital reserve ratio of -1.44 percent (FHA is required to keep the fund’s ratio at 2 percent). The hit to its finances required the agency last year to take a bailout for the first time in its nearly 80-year history.

With FHA now projecting a positive reserve for its fund, Brown says it’s time to lighten the burden on homebuyers.

“Achieving homeownership has become more difficult with current FHA mortgage insurance premiums,” he said in his letter.

By NAR’s estimates, FHA fees now make up nearly a quarter of a homeowner’s monthly mortgage payment. On a $150,000 loan with 4.5 percent interest, that translates into a total payment of $942, a 13 percent increase over 2008.

“In 2014, the mortgage insurance premium of 1.35 percent is 80 basis points higher than the rate of 0.55 percent in 2010,” Brown said. “The 80 additional basis points pushed an estimated 1.45 million to 1.65 million renters over a sustainable debt-to-income level for purchase of a home in 2013.”

Out of those impacted renters, NAR estimates as many as 125,000 to 375,000 would have bought a home last year had they not been priced out of the market.

Brown adds that many of today’s potential homebuyers who are priced out of FHA loans also cannot afford to use private mortgage insurance, which is as high as 1.48 percent annually for a borrower with a lower credit score (620-679) and a 3-5 percent down payment.

What’s more, Brown says: Many of these priced-out Americans are young, first-time homebuyers and members of minority groups—two populations FHA works hardest to serve.

“Providing access to credit for these homebuyers is a critical means of building wealth,” he said.

When asked for comment,a  spokesperson for HUD responded with the following statement:

"FHA is committed to pursuing initiatives that facilitate access to credit in a way that appropriately balances the needs and obligations to the Fund. The work on FHA HAWK [Homeowners Armed With Knowledge] and Quality Assurance Framework are two recent examples of initiatives designed to do that. The work on these items continues and we look forward to sharing additional information on next steps on these in the very near term."

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