Before the crash, banks were more willing to give loans to buyers deemed a credit risk because the FHA was standing beside them saying they’d cover the loan if anything were to happen. When the crash came, the FHA found themselves in a whole new world of debt, unable to cover all the loans that were failing. The FHA had to raise premiums drastically. The National Association of Realtors estimates that in 2013, nearly 400,000 potential borrowers were priced out of the housing market because of high FHA insurance premiums.
Finally, almost 7 years later, the Federal Housing Administration’s mortgage insurance fund is back up, but it is unlikely they will lower premiums anytime soon. The actuarial report this week stated that the FHA’s mortgage insurance fund reached a 0.41% capital ratio (which was -0.11%). This improvement is monumental, but still quite below the minimum of 2%. Overall, the new report shows the value of the FHA fun rose $3.7 billion in the past year. The auditors are projecting that FHA will reach a 2% capital ratio and an economic value of $23.4 billion in fiscal year 2016.
Now that the FHA fund is “on the path to recovery, NAR urges FHA to lower its annual mortgage insurance premiums and eliminate the requirement that mortgage insurance be held for the life of the loan,” said NAR President Chris Polychron in a statement.
But Department of Housing and Urban Development officials are caught in a tricky situation. They realize FHA can’t serve lower-income homebuyers without reducing or restructuring premiums, which are the highest in the FHA’s 80-year history.