FHA’s Tuesday release of its MMIF Report showing that FHA continues to build its capital reserve ratio to 11.1% will no doubt add fuel to the public debate about whether FHA should cut premiums for the borrowers it serves.
This debate comes at a time when mortgage rates have doubled since the beginning of the year, from around 3.5% to around 7%, giving new urgency to the need to keep mortgage fees down on all federal agency mortgage programs — not just FHA but also VA, Fannie Mae and Freddie Mac.
For some time, the Community Home Lenders of America (CHLA) — and its two predecessor organizations — have made it a top priority to promote homeownership for young families and for minorities and other underserved borrowers by reducing mortgage fees to better align with the underlying risk. The latest: last week, CHLA sent a letter to Congress suggesting that VA fee hikes should be allowed to expire next April.
CHLA has outlined how programs expressly designed to give younger Americans help in purchasing homes have been priced too high for actual risk. This impedes progress in addressing the wealth divide and in helping Americans left behind in the past due to unfair finance barriers to where people can live.
We have reminded policymakers that a carefully underwritten mortgage — paid off over time— is the No. 1 way most regular Americans build wealth. We have urged Washington policymakers to price housing insurance programs appropriately to actual risk, and not use these programs as budget devices to fund other federal budget priorities.
Washington has not always listened. A year ago this week, Congress raised mortgage fees on Fannie Mae and Freddie Mac by $21 billion over the next decade — not to cover risk on the loans, but to help pay for the $1 trillion infrastructure bill. And the way budget scoring works creates artificial disincentives to reduce the overcharging of FHA fees. So, it’s been a difficult road, with little progress.
However, we are happy to report that in October the Federal Housing Finance Agency (FHFA) took an important step, by making an announcement that Fannie Mae and Freddie Mac would be removing Loan Level Price Adjustments — a risk fee — on first-time homebuyers.
In the words of FHFA Director Sandra Thompson, “FHFA is eliminating upfront fees for certain first-time homebuyers, low-income borrowers, and underserved communities to promote sustainable and equitable access to affordable housing. . . Today’s announcement will result in savings for approximately 1 in 5 borrowers of the Enterprises’ recent mortgage acquisitions.”
This is progress in a key part of the mortgage market, but we still await action on cutting FHA premiums. This week’s strong MMIF report is the best argument we could make to cut fees. The current 11.1% capital ratio is more than 5.5 times its statutory requirement. And FHA acknowledged that even under a 2007-level stress test scenario, the capital ratio would still exceed 6% — more than three times its requirement statutory minimum.
The last time FHA cut annual premiums, in 2015, was an unequivocal success — a surge in underserved homebuyers using FHA and increased loan volume profits offset much of the fee cut.
Meanwhile, the Veterans Administration mortgage program sets guarantee fees by statute, so that’s a somewhat different animal. This program, too, despite being an earned-benefit program (you have to serve in the U.S. armed forces to obtain it), also serves a diverse set of Americans with lower-than-average FICO scores.
Here CHLA has been pushing Congress to alleviate the high premiums by allowing the fee hikes from 2019 legislation to lapse early next year, once the fees have paid for other veterans’ (non-mortgage) benefits. Letting these fees decline would be very good news for our young veterans and active-duty families also, saving them $200 million annually nationwide.
Congress should let these fees expire — and even consider lowering them further. Congress should also adopt House Resolution 1408, which would require a supermajority for Veterans Administration bills that use housing fees for other budget purposes.
In all these mortgage programs, we are not talking about granting credit to families who don’t deserve or qualify for the chance to own a home; this is no rolling of the dice. In fact, it’s the very opposite: we are saying that Washington has set mortgage fees too high relative to actuarial risk — and as a result deserving, credit-worthy families are getting locked out of homeownership.
Rising home prices and rising mortgage rates have made homeownership affordability more challenging than ever. Younger generations deserve the same opportunities that previous generations did to get on the homeownership ladder’s first rung on the path to wealth building.
FHFA’s recent fee cut for first-time homeowners and FHA’s very strong financial report are positive developments. Let’s continue the momentum to give the next generation a fair shot at the American dream of homeownership.
Rob Zimmer is Director of External Affairs for the Community Home Lenders of America (CHLA).
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story:
Rob Zimmer at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]