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Smaller Fees Might Be Coming for FHA Loans

While “more supply” has rallied most efforts so far to ease the affordable housing crisis, Biden is considering reduced fees to save FHA buyers $50-$70 per month.

NEW YORK – The Biden administration is considering a plan that would lower mortgage costs for first-time and lower-income homebuyers to make a purchase more affordable in the shadow of record-high home prices.

The latest option on the table is to cut premiums charged for loans insured by the Federal Housing Administration (FHA) loans, with industry officials pushing for reductions they claim would save new borrowers $50 to $70 per month. However, analysts say that might be a bit high for FHA, and it’s likely considering a smaller cut.

The FHA insurance fund is essentially a buffer of money FHA must maintain at a statutory minimum level of 2%. However, a 2021 independent audit found FHA had about four times that amount, or a net worth of more than $100 billion for a capital ratio over 8%, or quadruple its statutory requirement. Much of the FHA mortgage fees paid by homebuyers go into the insurance fund.

Mortgage industry officials believe lowering insurance premiums is a matter of fairness that would increase affordability as home prices and interest rates rise. However, Republican lawmakers are concerned that such a move could backfire.

“At a time of record-high housing costs, mortgage insurance premiums cuts would further spur demand and increase home prices while putting taxpayers on the hook for bad credit risk,” says U.S. Sen. Pat Toomey (R-Pa.), ranking GOP member of the Senate Banking Committee.

Source: Wall Street Journal (07/02/22) Ackerman, Andrew

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