Report: President to Announce Reduction in FHA Premiums

Author: Tory Barringer January 7, 2015 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services

President Barack Obama will announce this week a reduction to Federal Housing Administration (FHA) mortgage insurance premiums, according to media reports.

Bloomberg reported Wednesday that FHA will cut its mortgage insurance premiums to 0.85 percent, a 0.5 percentage point reduction. Obama is expected to make the announcement on Thursday in a scheduled speech on the housing market in Phoenix, Arizona.

FHA raised premiums in response to its declining mortgage insurance fund, which forced the agency to take a $1.7 billion bailout in 2013. Since then, it has rebuilt its capital, spurring some commentators to call for a cut.

When reached for comment, a HUD representative said he could not comment or confirm that the FHA premiums would be cut. A separate source familiar with the matter was able to confirm it, however.

The announcement would come as welcome news to many of housing's biggest trade organizations, who have been vocal in the past few months about the consequences of higher premiums.

In a statement to DSNews, Chris Polychron, president of the National Association of Realtors (NAR), said the group is hopeful at the rumor, adding that current premiums "have priced too many potential homeowners out of the market." NAR estimates that in 2014 alone, nearly 234,000 creditworthy borrowers were priced out of the housing market because of high FHA premiums.

"By lowering its fees, FHA will provide greater access to homeownership for historically underserved groups," Polychron said. "I look forward to attending the speech ... and sharing our views with President Obama."

Housing analysts have also joined the rising chorus of those urging for lower premiums. In a report put out before Wednesday's announcement, researchers Laurie Goodman, Bing Bai, and Jun Zhu at the Urban Institute argue that FHA could still net at least $2 billion in 2015 with premiums as low as 0.9 percent annually, allowing the agency to continue rebuilding its insurance fund.

"It makes sense to make up the shortfall more slowly, pricing new business more appropriately for the risk," the group said. "Thus, rather than attempting to make $5.7–$6.8 billion with its 2015 book of business ... it would serve the FHA better to lower the premiums and achieve the reserve at a more gradual pace."