Let’s Give Credit Where It Is Due; FHA Fund Rebounds

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The results are in and the report is that the FHA insurance fund has made a fantastic comeback raising its capital requirement ratio to 2.07%. This is just north of the required reserves of 2%. Hats off to the FHA! Nice work.

So, where do we go from here? The recent surge in the reserves was mainly due to two factors:

1. A decrease in the annual premium resulting in a drastic increase in FHA insured loans contributing to the fund; and
2. The performance of the post 2008 FHA insured loans resulting in less of a drain on the reserves from defaults and foreclosure related claims and expenses.

The big question now is whether FHA should again reduce the premiums. Why not? If it worked the first time then why not do it again? Maybe, this time a reduction in the up-front premium which, in most cases, would reduce the total loan amount, reducing the borrower’s monthly payments.

This will help to make it a little easier for consumers to not only afford a home, but to maintain it as well. After all, isn’t that the intent? Get them into a home that they can continue to afford until they are ready to move up.

FHA doesn’t get all the credit. After all, it is the Independent Mortgage Lenders that did most of the heavy lifting. With many Banks shying away from FHA lending, the Independents stepped up to provide this financing to more consumers so they too can realize their dream of homeownership. A job well done and these lenders can be proud of their success.

So, by continuing to produce quality FHA loans, the FHA fund will continue to strengthen. This will allow for  further premium cuts, making FHA financing affordable for more qualified potential home buyers. That is good news for everyone.

Unless the government finds other uses for the excess funds accumulating in the insurance fund.

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.