FHA may be healthy, but does that mean it’s time to cut premiums?

Hoping to not only shore up the FHA’s reserves but shift some market share back to the private sector, the Obama administration has tightened underwriting standards and hiked annual premiums for most FHA mortgages from 0.55 percent in 2010 to 1.35 percent today.

That’s too high, the National Association of Realtors says, costing a borrower with a $200,000 mortgage about $225 a month. Now that the FHA’s finances have been shored up, it’s time to lower premiums to a more affordable level, the trade group says.

The Community Home Lenders Association — a group formed by independent nonbank mortgage companies — has estimated that if FHA reduced its annual premiums to a more affordable 0.75 percent, it would still make a profit of 7.25 percent per loan.

But there’s more to the story than shoring up FHA reserves. With all of the increases, FHA insurance premiums are now roughly in line with what private mortgage insurers charge. Off the record, Obama administration officials have told columnist Ken Harney that they’re looking to pare FHA’s market share back to 10 percent. Source: realtor.org.


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