February 17, 2011 (Chris Moore)
Following the release of the Obama Administrations proposal on how to deal with the demise of Freddie Mac and Fannie Mae, the Department of Housing and Urban Development (HUD) announced that it was increasing fees on all Federal Housing Administration (FHA) insured mortgages. Many of the discussions leading up to that proposal focused on what would happen with FHA-insured loans as the government also wants to get out of that business, with some speculating that fees would be raised in order to discourage FHA loans. That may not be so.
FHA Commissioner David Stevens had this to say about the mortgage insurance premium increase:
I am getting hundreds of emails on the latest fee increase from loan officers and realtors. This is just an explanation as needed.
This week, February 14, I announced an increase in the Mortgage Insurance premium at FHA in the amount of .25% per year. It is important for all to at least understand the reason. I know there may be many responses to this, and I will be unable to respond, but I do think it important for all to understand the obligation.
FHA has suffered greatly from originated loans in years 2006-2008 and fortunately due to the changes we have implemented in the past two years since I was sworn in, we have managed to avoid external intervention into the program that could have forced even more conservative policies to impact your business.
I testify today, Feb 16, to the House Financial Services committee. Some will want, and do what, to eliminate all guarantees from FHA. It is through responsible management that I will argue against the need to intervene.
As I am sure you are aware, FHA has a statutory obligation to maintain a 2% capital reserve. We have been below that now for two annual actuarial reports to congress and this year it actually dropped further than the previous year. While there are reasons for this, like select mortgage Programs that really hurt the fund, it won’t matter much to legislators as their primary concern is that we become compliant with the law and get the reserves back up.
In the last year actuarial, submitted in October, it said that in the base case we would not get above 2% until 2015 and, additionally, there was a 40% risk that we could actually go negative. Going negative would require a direct subsidy from the treasury…….a bailout.
I recommended this increase. I recommended the increase based on my obligation to get the reserves back up. I do understand the concerns of those in the industry. Unfortunately, if we do not get the reserves back up it would be likely that Congress would take their own actions which could make the outcome even worse.
While I do not expect all to agree, I have made these moves to actually protect the program so that it could continue.
David H Stevens
Assistant Secretary of Housing &
Federal Housing Commissioner
US Department of Housing and Urban Development
417 7th Street, SW
Tags: mortgage insurance premium, HUD, FHA, loan officers, realtors, statutory obligations, reserves