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HUD Keeping FHA Premiums High at Least a Little Longer

An FHA report finds stability and suggests premiums – money paid by borrowers to offset future loan troubles – should be lowered. But HUD wants a “cautionary approach.”

WASHINGTON – In an annual report to Congress, the Department of Housing and Urban Development finds that the Federal Housing Administration (FHA) loan program is on solid financial footing – at least for now. However, a potential uptick in problem mortgages has pushed HUD to keep mortgage insurance premiums high for now, even though a drop would save FHA borrowers money.

The report also found a large correlation between FHA loans and first-time buyers, which make up 84.61% of FHA-endorsed loans.

The Mutual Mortgage Insurance Fund (MMI) supports FHA’s single-family mortgage insurance programs, as well as mortgages insured under the Home Equity Conversion Mortgage (HECM) reverse mortgage program. For the first time since 2015, its capital ratio – a percentage of the money that can operate almost as insurance to cover FHA loans that default – increased 1.93 percentage points to 8.03%.

A ratio that high suggests that HUD is more than prepared for potential bad loans, and it usually leads to HUD lowering the amount collected from FHA borrowers for the MMI. However, this year, HUD is dragging its heels. It says it’s “well positioned” to withstand future economic events and endure the outcomes from the pandemic-induced delinquencies that remain in forbearance or are seriously delinquent. However, HUD also appears unwilling to lower the MMI payments in case that’s incorrect.

“The strength of the fund is a promising sign and solidifies the important role FHA fulfills in making homeownership a reality for first-time homebuyers and those with lower incomes.” says U.S. Department of Housing and Urban Development Secretary Marcia L. Fudge. “Managing the strong fiscal health and performance of the FHA program is a top priority, and I am encouraged to see the MMI Fund remain resilient through the events of the past year. Looking ahead, we will ensure FHA is well positioned to provide broad and equitable access to homeownership.”

Highlights from FHA’s FY 2021 report

  • As of September 30, 2021, FHA had active insurance on more than 7.8 million single family forward and reverse mortgages, with a total unpaid principal balance of more than $1.2 trillion.
  • The percentage of first-time homebuyers using FHA insurance reached a new high of 84.61% of total FHA forward mortgage purchase endorsements in FY 2021.
  • The share of mortgages insured by FHA to minority borrowers reached almost 42%. FHA served double the percentage of Black and Hispanic borrowers compared to those served through mortgage originations by the rest of the housing market this past fiscal year.
  • FHA’s forward mortgage portfolio achieved solid performance with a stand-alone capital ratio of 7.99% as of Sept. 30, 2021, an increase of 1.68 percentage points over the previous year.
  • The Home Equity Conversion Mortgage (HECM) reverse mortgage portfolio saw a significant improvement in its valuation. It has a stand-alone capital ratio of 6.08% as of Sept. 30, 2021, compared to a negative 0.78% capital ratio from the previous year.

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