If Brian Montgomery is confirmed by the full Senate as the new FHA Commissioner, and it is reported he will be, Realtors and mortgage lenders are looking for FHA to reduce their mortgage insurance premiums.
He may try but it appears he may face some resistance from the current Administration. Recent reports show the FHA fund is not as healthy as it should be.
Further, some say it’s time for FHA to take a step back and serve the financing needs of low to moderate and first-time homebuyers who have trouble obtaining mainstream conventional financing.
By its nature, that is risky business. This means FHA would need a healthy insurance fund to offset potential losses from defaults. That translates into no premium cuts.
Others say that the homebuyers FHA should be helping are being shut out of the housing market because the cost of the FHA financing is much too high.
With rising home prices, lowering the premiums would help more homes become affordable for these buyers. That’s good for the consumers, the Realtors, the lenders, and the economy. But, is it good for FHA?
It’s a balancing act. Lowering the premiums will:
- Reduce the cost of FHA financing helping to make more homes affordable.
- The more affordable the homes, the more buyers.
- The more buyers, the higher the demand.
- The higher the demand, the more sales.
- The more sales, the less is the supply.
- The less in supply, the higher the prices.
- The higher the prices, the harder it is for low to moderate and first-time homebuyers to afford a home.
- And round and round we go…
- Keeping FHA premiums as they are, may make it more difficult for these buyers to obtain financing.
- That means fewer buyers. Fewer buyers mean less demand.
- Less Demand translates into fewer sales and higher supply.
- More supply means home prices decline to make them more affordable without the FHA premium cut.
How long will it take? What’s the effect on the economy, consumers, Realtors, and lenders? I think you get the picture.
Question is: Which way is better? Who knows? Ask the experts…
To cut or not to cut, that is the question. One that will most likely be debated once Mr. Montgomery is installed. Let’s hope he has a plan.
I believe he does. I think it has something to do with risk-based premiums, but will he be allowed to execute it? Stay tuned…