Obama to announce cut in FHA premiums

by Rachel.Norvell07 Jan 2015
U.S. President Barack Obama is set to announce a 50 basis point reduction of Federal Housing Administration (FHA) mortgage insurance premiums to 0.85% in a speech to be delivered Thursday in suburban Phoenix, according to Bloomberg.

“Any reduction in the mortgage insurance premium is welcome news; however, 0.85% is still too high," said Marc Savitt, president of the National Association of Independent Housing Professionals and The Mortgage Center, "HUD also needs to allow borrowers to drop the monthly insurance premium once the loan reaches 80% LTV. Lowering the costs associated with FHA financing, will allow more borrowers to qualify and afford the program.”

Since the crisis, FHA fees have skyrocketed. The annual insurance premium paid by most FHA borrowers has risen to 1.35%, up from 0.55%  in 2010 — or more than $300 a month on a $300,000 mortgage. The higher premiums have helped beef up the agency’s cash cushion when its finances took a hit after the housing bust. If the lower fee of 0.85% happens, the monthly payment of a loan that size could reduce by more than $120.

While details of his address have yet to be released, industry experts suggest the president will avoid the hot button topics of GSE reform and the elimination of Fannie Mae and Freddie Mac.

The omission could signal that the administration is stepping back on its previous housing reform push.

"We believe the absence of the topic in his Phoenix speech may be seen as a sign that the administration is giving up on its goal of unwinding the (government sponsored enterprises)," according to analysts from New York-based investment bank Keefe, Bruyette, & Woods.

In early 2011, the Obama administration called for the slow death of mortgage giants Fannie Mae and Freddie Mac, and in 2013, the president urged for a replacement of the GSEs with a new government mortgage reinsurer that would be more insulated from financial reverses.

Congress is also calling for the unwinding of Fannie and Freddie. In November 2014 during a Senate Banking Committee hearing, lawmakers grilled Federal Housing Finance Agency (FHFA) Director Mel Watt and pushed for a move toward dismantling the mortgage giants to set up a new housing finance framework.

In his Arizona speech this week, the president will talk about new housing initiatives, which could include easing mortgage lending standards. "I think the president could talk about some relaxing of lending requirements," said Sheila Harris, former director of the Arizona Housing Department and board member of the Federal Reserve Bank of San Francisco told The Arizona Republic. "It should be easier, but not easy, for qualified borrowers to get mortgages."

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