MBA, Trade Groups Urge National Economic Council to Support FHA Insurance Premium Reduction

The Mortgage Bankers Association and other industry trade groups urged the National Economic Council to support a reduction of the annual mortgage insurance premium for borrowers with FHA-insured loans.

The letter to Brian Deese, Chairman of the NEC, said a reduction in FHA mortgage insurance premiums—long-advocated for by MBA—is prudent under current economic conditions.

“Sharply higher mortgage rates and rising home prices mean the time to act is now,” the letter said. “Home prices have continued to show strong year-over-year increases, with the existing home sales price reaching $410,600, up 11% from one year ago. New home prices have also reached record levels in 2022, climbing to $439,400. Since the beginning of this year, mortgage rates have climbed sharply – this week’s rate for a 30-year fixed rate mortgage is 5.89%, 267 basis points higher than in January. The combination of higher prices and rates has put severe stress on prospective LMI and first-time homebuyers.”

According to the MBA Purchase Application Payments Index, the national median mortgage payment was $1,844 in July, up by more than $460 in just the first seven months of this year.

The letter noted FHA’s Mutual Mortgage Insurance Fund capital reserve ratio stands at more than 8%, four times the statutory minimum reserve ratio. Just as importantly, the letter said, FHA loan performance has recovered from COVID-related forbearance – FHA’s serious delinquency rate in the second quarter of 2022 at 4.64 has returned to pre-pandemic lows and stands at the lowest level since first quarter 2020.

“Against the backdrop of robust FHA capital reserves and rapidly deteriorating affordability, it is critical for the Administration to ensure low to moderate- income and first-time homebuyers are not left behind,” the letter said. “Lowering the MIP – with a focus on FHA’s recurring ‘annual premium – increases homebuyers’ purchasing power by reducing monthly payments and directly putting money into their pockets every month, giving them the opportunity to become homeowners and build generational wealth. As economic conditions continue to worsen, reducing the MIP also allows borrowers the flexibility to spend on necessary items like food, gas, education, and other monthly bills.

Joining MBA in the letter: the National Association of Realtors; the Manufactured Housing Institute; and the National Association of Home Builders.