FHA Makes 30 Bps MIP cut, Mortgage Industry Cheers

Article originally posted on HERE on February 23, 2023

The Cut, Widely Anticipated by the Industry, Will Result in an Annual Premium of 55 bps for Most Borrowers, Down from 85

The Federal Housing Administration (FHA) on Wednesday morning announced a 30 basis point reduction in the annual premium charged to mortgage borrowers. The cut, widely anticipated by the industry, will result in mortgage insurance premiums (MIP) of 55 bps for most borrowers, down from 85.

In a statement released Wednesday, the White House said the MIP cut will reduce housing costs by an average of $800 for roughly 850,000 homebuyers and homeowners in 2023.

Housing and Urban Development (HUD) Secretary Marcia Fudge will make the official announcement with Vice President Kamala Harris Wednesday afternoon at Bowie State University in Maryland.

Speaking at the Mortgage Bankers Association’s Servicing Solutions conference in Orlando on Wednesday, FHA Commissioner Julia Gordon began her speech with a bit of humor.

“The great news is that no longer your first question to me in any forum has to be when are you going to reduce the mortgage insurance premium on FHA mortgages because the answer is, we are doing that today,” she told attendees.

Mortgage trade groups, which have been lobbying for an MIP cut for several years to reduce housing costs, celebrated the move.

“The lower premiums will expand homeownership opportunities by lowering mortgage payments for qualified FHA borrowers, providing critical relief from the steep rise in mortgage rates and home prices just in time for the spring buying season,” the Mortgage Bankers Association said in a statement Wednesday. “This will especially help minority homebuyers and low-and moderate-income households who are predominantly served by FHA loans.”

Scott Olson, the executive director of Community Home Lenders Association, which represents smaller mortgage lenders, commended the Biden administration for the cut to premiums.

“Long a top CHLA priority, an FHA premium cut is critically needed to insure minorities and other underserved borrowers have affordable access to mortgage credit, in a period of rising mortgage rates and unprecedented homeownership affordability challenges,” he said in a statement.

Some mortgage analysts, however, say the premium cut – the first since the Obama administration made a 50 bps cut in January 2015 – won’t have a big impact on the mortgage market.

“We believe that a cut of that size will have very limited impact in terms of moving share from the MIs to the FHA,” Bose George, an analyst at Keefe Bruyette Woods wrote in a note Tuesday night ahead of the expected announcement. “Further, in October 2022, the Federal Housing Finance Agency (FHFA) had announced cuts to GSE fees to higher risk borrowers (known as LLPAs), which would have likely shifted some volume from the FHA to the MIs. This FHA premium cut will likely just offset the impact of those LLPA cuts and result in market share staying fairly stable.”

In November, the FHA’s Mutual Mortgage Insurance Fund reported a capital ratio of 11.11%, far above the statuatory minimum of 2.0%.

During her speech in Orlando, Gordon acknowledged that the road to cutting MIPs was a long one because they work through the Congressional budget process.

“We have a very high capital ratio right now – it’s more than five times the statutory minimum of 2%. And what we did was a great deal of analysis and thought and consultation, to make sure we met at a number that we believe is meaningful to borrowers, and will make a difference for those borrowers but that also was prudent from the perspective of the Mutual Mortgage Insurance Fund. And I think we got there.”

The total cost of the program is projected to be about $678 million in the first year of the new pricing.