Private M.I. Firms Unhappy With FHA Premium Cuts

Jan. 09--Private mortgage insurance companies are annoyed at the Federal Housing Administration's decision to lower mortgage insurance premiums.

On Monday, the Department of Housing and Urban Development announced plans to reduce annual M.I. premiums on FHA-insured loans.

The reduction, which goes into to effect later this month, was made as a result of the improved health of the Mutual Mortgage Insurance Fund.

But a statement today from the U.S. Mortgage Insurers questioned the decision to lower FHA premiums.

The trade group cited a statement in November by a HUD official indicating there would be no additional M.I. premium cuts. The statement was made as the MMIF had finally reached the capital level mandated by Congress following "nearly a decade of severe stress."

"While the MMIF is making needed improvements to its financial health, now is the time to establish a more coordinated housing policy to ensure broad access to low down payment lending while reducing the government's footprint in housing and protecting taxpayers," USMI President and Executive Director Lindsey Johnson said in the statement. "Arbitrary reductions to the FHA's MIP is bad policy because it pulls borrowers who would otherwise be served by the conventional Fannie Mae and Freddie Mac market, which is backed by private mortgage insurance for first losses versus the taxpayer."

Johnson added that taxpayers are currently exposed to $1.3 trillion in risk in force at FHA. In addition, likely fee adjustments at Fannie and Freddie as a result of FHA's decision will result in increased mortgage credit risk by the government.

"We agree with views of past FHA commissioners who contend private capital should play a leading role in guaranteeing low down payment mortgage credit risk so the government and taxpayer don't have to," Johnson continued. "Given the wide availability of M.I.-backed mortgages, the FHA does not need to undercut private capital."

He noted that the last time FHA cut its M.I. premiums in 2015, there was a wave of FHA refinances -- essentially lowering protection on existing FHA mortgages while not reducing the risk.

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