Happy Monday, LOs!
It's November, which means the Department of Housing and Urban Development will soon release its annual report. As usual, you'll want to pay special attention to the state of the FHA's Mutual Mortgage Insurance Fund.
In fiscal year 2020, the capital reserves of the MMIF grew by $12.2 billion to $77.8 billion, pushing the capital ratio to 6.1%, up 126 basis points from the year prior and almost three times higher than the 2.0% mandated minimum. It's expected to be in even better shape this year.
With the release of HUD's report, fair housing organizations will once again issue their calls for the FHA to lower mortgage insurance premiums. Many fair housing advocates have argued that the annual MIP makes FHA loans unaffordable for first-time homeowners, and results in elevated monthly payments.
Currently, the upfront mortgage insurance premium is 175 basis points on a 30-year fixed-rate FHA single-family loan, while the annual MIP is typically 85 bps for the full life of the loan.
The industry was hopeful earlier in the year that HUD Secretary Marcia Fudge would move to lower the annual MIP, but she declined to do so at the time citing the uncertainty of the pandemic.
Fudge did hint that sometime in the near future an annual MIP reduction would be reviewed by the administration. Industry observers recently told HousingWire that a 25 to 50 bps cut in the MIP premium wouldn't put the MMIF in any sort of financial jeopardy, and would be in line with the administration's stated goals of making housing more equitable.
It's also not exactly without precedent, either. Former HUD Secretary Julian Castro in January 2017 ordered a 25 bps reduction in MIP, but it was rescinded by executive order by the Trump administration.
One LO I spoke to said many borrowers he works with refuse to get FHA loans because of the MIP payments. Instead, borrowers opt to wait until their credit scores improve and then apply for a conventional loan.
However, those that do get an FHA loan quickly (within a year or two) refinance into a conventional loan to avoid the insurance payments, he said.
Tell me LOs, how often do your clients refuse to get an FHA loan and instead wait to get a conventional loan? How helpful will a MIP reduction be? How often do borrowers refinance after getting an FHA loan?
Email me anonymously at mvolkova@housingwire.com.
Maria Volkova, Mortgage Reporter
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