On November 17th, FHA released its Summary of the FY 2014 Actuarial Report. This Report showed that the FHA Insurance Fund gained nearly $6 Billion in value over the past year and now stands at $4.8 billion. However, it should be noted that the current capital ratio is .41 percent which is still below the mandated 2% threshold.
The increased FHA Mortgage Insurance Premiums (MIPs) combined with lower default/claim rates certainly have contributed to this improved financial situation for the FHA Insurance Fund. The big question now is whether or not FHA will give serious consideration to reducing their high MIP charges or take a conservative approach and try to improve the value of the fund even more in order to help reach the 2% capital ratio.
The elephant-in-the-room, however, is talk about a 3% down payment program to be implemented by Fannie Mae in the coming months. This program would certainly negatively impact FHA’s market share. Of course, it is anticipated that some stringent underwriting criteria will be associated with any 3% conventional down payment program such as higher minimum FICO scores for prospective borrowers.
However, those prospective borrowers that can meet these yet-to-be-announced underwriting requirements will likely choose the Fannie Mae product over the FHA loan program because of FHA’s high Mortgage Insurance premiums. As a result, FHA’s future book-of-business would consist, in large part, of borrowers with lower FICO scores and low down payments. Not a good formula for advocating a reduction in premiums anytime soon