Carson Promises to Review FHA Decision to Cut Mortgage Insurance Premium

In a January 9, 2017 article, Housing Wire reports that the Federal Housing Administration (FHA) lowered the annual mortgage insurance premium for its Mutual Mortgage Insurance Fund (MMIF) by 25 basis points. Shortly following this announcement on Thursday, January 12th, Dr. Ben Carson, Trump's nominee to head the Department of Housing and Urban Development (HUD), explained that if confirmed, he plans to review the FHA's decision. Carson, testifying before the Senate Banking Committee as part of the confirmation process, further explained that he had not been consulted prior to the FHA's recent announcement.

The decision for the cut comes after the MMIF grew for the fourth straight year, and a little more than three years after requesting a $1.7 billion accounting transfer from the U.S. Treasury in 2013 in order to bring the MMIF back up to its statutorily mandated capital reserve ratio of 2 percent. In November 2016, FHA reported that the MMIF reserve ratio stood at 2.32 percent, leading some to speculate that FHA may cut its premiums, according to Housing Wire. In supporting the cut, HUD Secretary Julián Castro said in a release, "This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers. After four straight years of growth and with sufficient reserves on hand to meet future claims, it's time for FHA to pass along some modest savings to working families." However, House Financial Services Chairman Jeb Hensarling disagreed, releasing a statement saying "Lowering premiums to below market rates now only puts the FHA in a more precarious financial condition." He further stated, "The FHA must be fiscally sound, with a clearly defined mission, to ensure homeownership opportunities for creditworthy first-time homebuyers and low-income families. Lowering FHA premiums now is counterproductive to achieving these goals and puts the U.S. taxpayer at greater risk."

SFIG strongly believes that reinvigorating the private label MBS market should remain an important priority for the housing finance industry. SFIG believes that fees resulting from government policy decisions, like the recent decision of FHA to lower its ongoing mortgage insurance premium, should fully reflect the cost of the credit risk to help protect against unintentional crowding out of private capital. SFIG supports a goal of comprehensive housing finance reform, including policies that foster the expansion of PLS in order to ensure that private capital bears the lion's share of mortgage credit risk over time.

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