Bill proposes repeal of life-of-loan insurance premiums for FHA loans

New legislation seeks to reinstate the previous policy, which required premiums only until the loan balance reached 78% of the home value

Bill proposes repeal of life-of-loan insurance premiums for FHA loans
A bill has been introduced in Congress which proposes that borrowers with Federal Housing Administration (FHA) loans will no longer have to pay mortgage insurance premiums for the life of the loan.

The “Making FHA More Affordable Act,” proposed by Rep. Maxine Waters (D-Calif.), would reinstate the FHA’s previous policy of only requiring premiums until the outstanding principal balance reaches 78% of the original home value, similar to the policy for private mortgage insurers under current law.

“Families who take out home loans through the Federal Housing Administration (FHA) should not be unnecessarily burdened with mortgage insurance premiums for the life of the loan,” Waters said. “My bill would remove this unfair requirement for FHA borrowers and help to make mortgages more affordable for hardworking Americans.”

The FHA has been requiring life-of-the-loan premiums since 2013. The change in policy was justified as part of efforts to strengthen the Mutual Mortgage Insurance Fund, which had dipped below the statutorily mandated capital ratio of 2% in the wake of the housing crisis.

According to a document prepared by the House Financial Services Committee’s Democratic staff, the current policy results in FHA borrowers paying far more in premiums over time than non-FHA borrowers. Given that the FHA disproportionately serves low- and moderate-income borrowers, first-time homebuyers, and minority borrowers, the policy also disproportionately harms these same households.

The bill is supported by the National Association of Realtors, the National Association of Real Estate Brokers, the Community Home Lenders Association, the National Consumer Law Center, the National Housing Conference, the National Community Reinvestment Coalition, the California Reinvestment Coalition, and the National Association of Hispanic Real Estate Professionals.

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