HUD Secretary Fudge Willing to Examine Dropping Life-of-Loan FHA Coverage

(Image of HUD Secretary Marcia Fudge courtesy of congressional livefeed.)

At a House Financial Services Committee hearing Thursday, HUD Secretary Marcia Fudge suggested the agency would consider eliminating life-of-loan premium requirements for FHA-backed mortgages.

Currently, borrowers with FHA-insured loans pay a Mortgage Insurance Premium (MIP) to protect FHA should the borrower default on a loan. The MIP has two components: a 1.75 percent upfront charge paid at closing (usually financed in the loan amount) and, for most borrowers, a 0.85 percent annual charge that is collected as part of the monthly payment for the life of the loan. Unlike Private Mortgage Insurance, the MIP does not go away when the borrower reaches 20% equity in their homes; it is collected until the loan is paid off.

The Mortgage Bankers Association has long advocated for suspending life-of-loan requirements for borrowers with FHA-insured loans and worked with Members of Congress to suggest ending those requirements.

At Thursday’s hearing, Rep. Brad Sherman, D-Calif., asked Secretary Fudge about eliminating the life-of-loan premium requirements. “I don’t have to tell you that working people, people of color, first-time homebuyers, they have to pay the mortgage insurance premiums, that raises their costs,” he said. “Are you willing to look at not requiring them to make these payments through the life of the loan, but rather to eliminate the payments when they get a certain loan to value as the value of the house goes up?”

“Yes, I’m willing to look at it,” Fudge replied.

Rep. Gregory Meeks, D-N.Y., followed up in another exchange. “My question would be, do you think there could be a scenario where FHA mortgage insurance premiums could follow a model that is similar to the Private Mortgage Insurance [model], where, you know, after a period of time you get equity in the home, that drops the — you know, they can eliminate that — that insurance product and it drops the monthly cost? Is it something that you think that we can work on?”

“I would love to see it happen,” Fudge said.

MBA will continue to work with lawmakers and policymakers across parties to eliminate life-of-loan premium requirements for FHA-backed mortgages.