Lower fees could be coming for FHA loans

While “more supply” has garnered most of the effort so far to ease the affordable housing crisis, Biden plans to cut fees to save FHA buyers $50-70 a month.

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

The final option on the table is to cut premiums charged for loans insured by the Federal Housing Administration (FHA), with industry officials pushing for cuts they say would save new borrowers $50 to $70 per month. However, analysts say that could be a bit high for the FHA, and they’re probably considering a smaller reduction.

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

Mortgage industry officials say cutting insurance premiums is a fairness issue that would increase affordability as house prices and interest rates rise. However, Republican lawmakers fear such a move could backfire.

“At a time of record housing costs, mortgage insurance premium cuts would further stimulate demand and drive up home prices while blaming taxpayers for bad credit risk,” says U.S. Senator Pat Toomey ( R-Pa.), GOP ranking member of the Senate Banking Committee.

Source: Wall Street Journal (7/22/22) Ackerman, Andrew

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