Mortgage Compliance

CHLA: “FHA…Cut Your Rate!”

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CHLA-FHA-Rate-reductionMore calls from the mortgage lending industry for FHA to reduce their annual mortgage insurance premiums. This one comes from the Community Home Lenders Association (CHLA) (MIP Cut).

Who is the CHLA and why do they want another FHA premium cut? The CHLA is a national non-profit association of community-based mortgage lenders who, among other things, promote policies to help increase affordable mortgage options to assist home buyers and homeowners. You can learn more at www.communitylender.org.

CHLA believes that with the recent increases in FHA insured loans paying into the FHA insurance fund at the higher initial premiums, and with current FHA loans performing much better since the 2008 debacle, the current annual premium rate of 0.85% could be reduced another 30 basis points, to 0.55%.

Their rationale is that the increased funds flowing in from the prior rate cut, coupled with fewer claims, have increased the fund to a point where it may soon reach the required 2% reserve. This cut, they say, will help to provide more affordable financing to qualified consumers looking to buy a home.

However, with the increase in FHA business, the total volume of insured FHA loans continues to increase. This in turn increases the base for determining the 2% reserve. It’s a little like a cat chasing its tail. Hopefully, in the case of the FHA, the fund it will catch up.

I believe it will, and when it does, the potential for an additional cut will exist, as long as the recently originated FHA loans, and those currently being insured, continue to perform at the current levels. This will put less of a strain on the fund allowing it to grow faster to the required level for reserves. The question is…when?  I leave that answer to those much more qualified. I am sure they will vary.

By the way, CHLA also wants FHA to bring back the automatic premium cancellation when the loan pays down to a 78% LTV. What might that due to the fund? All that money projected from the lower premium, being paid over the extended period for loans recently insured, would not be realized. That will affect the bean counters analysis of “if and when” they believe the fund will be solvent enough to cut the rate. Stay tuned…

What’s your take on the issue?

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In the meantime, please continue to originate quality FHA loans. The future of the fund depends on it.

 

Michael Vitali

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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Michael Vitali

About Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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