Mortgage originations among borrowers with credit scores between 620 and 680 have plummeted 90% since 2007, according to the National Association of Realtors.
“One thing that’s holding back these borrowers is a series of increases in FHA
’s mortgage insurance premiums,” Robert Freedman, NAR manager of multimedia communications, wrote in a blog post. “They’ve been raised five times since 2010 and today they cost borrowers about 85 basis points more in fees than before.”
Assuming a $150,000 home price, that translates into an additional $100 or so a month in out-of-pocket costs for borrowers, Freedman wrote. That extra $1,200 could be the final straw for would-be borrowers of moderate income.
“Without a doubt, FHA
needed to raise premiums,” he wrote. “In the aftermath of the housing crisis, the agency stepped up when lenders fled the market and shouldered a good portion of the originations market. In doing that, it helped prevent a further meltdown in the economy, but it also took a hit to its reserves.”
Indeed, last year the FHA
needed a $1.7 billion cash infusion from the Treasury in order to cover a projected shortfall in its reserves. However, the White House projected
in March that the agency is back on solid financial ground and wouldn’t need to raid the Treasury again this year.
That means the FHA
should be able to ease up on the increased premiums, according to the NAR.
“NAR’s position is that FHA
must balance its two goals, which are, on the one hand, to meet the needs of borrowers who rely in it for financing, and, on the other, to maintain the soundness of its finances,” Freedman wrote. “It’s a balancing act, and NAR believes the agency has appropriately shored up its finances and can now ease some of its premium increases.”
An industry group is pushing the Federal Housing Administration to pull back on insurance premiums, which the group claims are holding back borrowers.