The Federal Housing Administration’s rise in mortgage insurance fees prevented an estimated 375,000 purchases in 2013, according to data from the National Association of REALTORS®. FHA has more than doubled its mortgage insurance fees since 2010, adding up to about $340 a month to some buyers’ payments compared to $125.
FHA rose its premiums to replenish its capital reserves, which were depleted during the housing crisis and a high number of defaults.
NAR and Community Home Lenders Association, among other groups, are calling for the agency to partially roll back and restructure its fees, particularly since FHA is set to regain its financial footing later this year. The agency will have a capital reserve balance of $7.8 billion in 2014, according to the Department of Housing and Urban Development.
Housing groups are urging FHA to lower its fees and shift the costs to the one-time premium borrowers pay at origination, which can be rolled into the loan’s financing, Bloomberg reports.
“When you’re asking young families to pay a couple hundred extra dollars every month in new FHA fees, you’re keeping a lot of them from becoming home owners,” Brian Chappelle, a former FHA director and partner at Potomac Partners LLC, told Bloomberg. “Yes, the insurance fund needed to raise more revenue, but using the monthly fees wasn’t the way to do it.”
Lending volume has since fallen. In February, FHA provided about 27,100, the fewest since the financial crisis and a 32 percent decline from a year earlier.
But FHA Commissioner Carol Galante maintains that the new fees aren’t sidelining home owners. “We’re reaching a tipping point where we believe that further increases would reduce access to credit,” Galante said at a Mortgage Bankers Association conference last month. “However, now is not the time to roll those premiums back. Right now we are priced appropriately and are reaching out to creditworthy individuals.”