The Federal Housing Administration (FHA) fills a critical need for millions of homebuyers every year, but more can be done to put FHA loans closer in reach for creditworthy buyers.
That’s the message REALTORS® shared with Beth Zorc, acting general counsel and principal deputy general counsel at the U.S. Department of Housing and Urban Development (HUD). Zorc offered the keynote address at the Regulatory Issues Forum during the 2017 REALTORS® Conference and Expo.
REALTORS® had a lot to discuss, with the FHA mortgage insurance premium taking center stage during the event. Currently, FHA charges borrowers an annual premium of 85 basis points, a figure NAR argues is too high to maintain affordability. Under the previous administration, FHA reduced the annual premium by 25 basis points, but this reduction was quickly suspended under the current administration. According to NAR estimates, the lower premium would have put homeownership through FHA-backed mortgages in reach for an additional 30,000 to 40,000 homebuyers.
In her remarks, Zorc said HUD is continuing to look at the issue and will have additional information to share later in November and will make its decisions based on the health of FHA’s Mutual Mortgage Insurance Fund (MMIF). In the past, NAR has pointed to the MMIF’s continued health as evidence that an FHA premium cut is appropriate and warranted in the current lending environment.
Similarly, REALTORS® have long supported an end to what’s known as “life of loan” mortgage insurance. On a conventional mortgage, borrowers typically pay for mortgage insurance if they have less than 20 percent equity in the property; however, when homeowners reach the 20 percent equity mark, they’re generally allowed to cancel their mortgage insurance and put that money back in their pocket. FHA loans, however, require borrowers to maintain costly mortgage insurance for the life of the loan.
REALTORS® argue that life of loan mortgage insurance needlessly takes money from homeowners and offers a strong incentive for borrowers to refinance out of FHA, potentially weakening the program’s book of business.
During the event, Zorc also took questions from NAR Treasurer Tom Riley, who asked about HUD’s pending condo rule. REALTORS® have long sought changes to current limitations on owner-occupancy rates, commercial space in buildings and other regulatory burdens. Zorc said those changes are set to be addressed as part of an ongoing HUD rulemaking, but Riley pressed Zorc for an update on the timing of that rule.
“Reducing owner-occupancy requirements and increasing allowable commercial space are essential to opening up more affordable housing options for first-time buyers, especially in urban areas,” said Riley. “Making the condo project re-certification process more streamlined and less burdensome is key.”
Zorc said while work on the condo rule is ongoing, HUD has made significant progress and hopes to release a final rule soon.
NAR President Bill Brown said there are big issues facing our industry that need to be addressed.
“I’m grateful that HUD continues to work with REALTORS® on improving the landscape for homeowners and prospective buyers,” said Brown. “Our relationship is critical to the success of consumers everywhere. REALTORS® look forward to working together with HUD on behalf of homeowners in the years ahead.”
For more information, please visit www.nar.realtor.
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