Could FHA afford to loosen up on premiums? Yes. Will it? Don’t hold your breath

Julie C. Nichols General

Inman News – Ken Harney

It’s been a key question for lenders and real estate professionals who work with first-time and moderate-income homebuyers: When will FHA finally loosen up and give us a break on mortgage insurance premiums? Now that the agency is back making money and adding to its insurance fund reserves — check out the Obama administration’s latest budget proposal — isn’t it time to start chipping away at FHA’s record-high, deal-killing insurance premiums? Isn’t it time to stop sending creditworthy buyers to cheaper conventional financing competitors — primarily Fannie Mae and Freddie Mac — because private mortgage insurers’ premiums are more affordable? Well, don’t hold your breath.

The answer from FHA is no. Although the administration’s new budget proposal forecasts $10.2 billion in revenues for FHA in 2014 and a profit margin of 9 percent on loans endorsed in 2015 — up from 7.25 percent this year — officials confirmed to me last week that there’ll be no significant easing on fees anytime soon. In fact, rather than reducing premiums to expand affordability, FHA plans to impose a new fee — a “quality assurance” charge on lenders participating in its programs. The purpose will be to force lenders — and ultimately their homebuyer customers — to finance a new $30 million early-detection program intended to spot potential defects in loan originations. The idea, according to FHA, is to cut the risk of penalties and indemnifications for lenders when loans later go bad.

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