Now that the Federal Housing Administration’s insurance fund has reached a positive level for the first time in three years, is it time for the FHA to lower mortgage insurance fees on borrowers?
A group of 18 senators — all Democrats and an independent — certainly think so. In a letter on Thursday, they called on Department of Housing and Urban Development Secretary Julián Castro to lower FHA mortgage costs, typically charged to borrowers who bought homes with low down payments.
The letter, signed by Sens. Barbara Boxer (D., Calif.), Robert Menendez (D., N.J.), Charles Schumer (D., N.Y.) and others, said the agency’s improving finances since the financial crisis and housing collapse now means that a premium reduction should be afforded to homeowners.
“We congratulate you on the vast improvement in the FHA’s financial position and urge you to use this opportunity to ensure that premiums are set at a level that balances both sustainability and affordability,” wrote the senators in the letter.
The FHA’s mortgage insurance business surged significantly during the Great Recession. The agency is supposed to fund itself from premiums it charges homeowners, and it raised premiums in early 2013 to shore up its fund. The agency doesn’t issue mortgages, but insures lenders against losses on loans with down payments of as little as 3.5 percent.
The letter from the Senators comes two months after an independent annual audit found that the FHA’s Mutual Mortgage Insurance Fund carried an economic value of $4.8 billion at the end of September, its first positive value since 2011.
However, the report also found that the fund’s capital reserve ratio, which is supposed to stay above 2 percent, grew more slowly than expected to 0.41 percent. The fund wasn’t projected to reach the congressionally mandated 2 percent threshold until 2016.
The FHA receives its first bailout in 79 years in 2013, an injection of $1.7 billion.
“With the improved outlook of the MMIF, we believe now is an appropriate time for the FHA to reexamine its premium levels to determine whether they can be reasonably and safely lowered,” the Senators wrote. “While preserving the solid footing of the reserve fund is essential, reducing fees does not necessarily conflict with this goal. As any business knows, just as a price that is set too high will lead to less profit, not more, lowering the premium on qualified borrowers may actually produce greater revenue and fully restore the capital ratio more quickly.”
Read the full letter here.