NAMB president urges action to help FHA borrowers
Congress continues its work on housing legislation it hopes will improve housing affordability, which remains a challenge for homebuyers.
While the bills aim to incentivize more home building and remove red tape that holds up these projects, other legislative issues that could impact housing affordability still need to be addressed.
In December, the Broker Action Coalition (BAC) announced that one of its next legislative goals was to work toward reform of FHA mortgage insurance rules. These rules require mortgage insurance to remain on an FHA loan for the life of the loan. With conventional loans, this insurance is removed after a loan drops below 80% loan-to-value (LTV).
The BAC won’t be alone in this legislative fight, as the National Association of Mortgage Brokers (NAMB) has announced it will be lobbying for changes in these rules as well. The Mortgage Insurance Freedom Act, or HR 5508, was introduced by Democratic Rep. Gregory Meeks and Republican Rep. Pete Sessions, but hasn’t moved any further yet.
Kimber White (pictured top), president of NAMB, is hopeful that Congress will take up this issue and make long-overdue changes.
“It takes Congress to make that change,” White told Mortgage Professional America. “And I don't know if they have an appetite for it. I would love to see it. I think the rules make no sense at all. Conventional does it, so it makes no sense why FHA would not get rid of it at 78% LTV.”
An additional penalty
FHA loans help borrowers of all financial situations, but are especially helpful for lower-income and first-time homebuyers. By requiring them to pay mortgage insurance for the life of the loan, White said they’re being penalized too harshly.
“I call it an additional penalty, but they're claiming that it's risk mitigation,” White said. “They're claiming that it's going to protect the fund. Honestly, it doesn't make sense. By the time someone's reached 78%, there's equity in the property. They’ve paid on time. What risk is there that they're having? The fund is secure and statutory.”
White also noted that by keeping the insurance on the loan beyond the 78% LTV ratio, more people are inclined to refinance from FHA to conventional, which puts more strain on Fannie Mae and Freddie Mac.
“The Life of Loan MIP policy is also creating unintended market consequences that ultimately undermine the purpose of FHA programs,” he said. “FHA borrowers seeking to refinance to take advantage of their equity position or lower interest rates are being forced to leave the FHA program and transition to conventional financing in order to avoid perpetual mortgage insurance costs.
“This migration is placing additional strain on Fannie Mae and Freddie Mac, which are absorbing loans that would naturally remain within the FHA system absent this policy barrier. Restoring traditional MIP cancellation at 78 percent LTV would strengthen FHA's loan portfolio and reduce unnecessary pressure on the government-sponsored enterprises.”
Finally, this policy is putting an additional strain on a household budget already dealing with higher property insurance and tax bills.
“We're talking about affordability, and right now, the people that need it are these people,” White said. “On a $400,000 loan, that would be an extra $200 a month that they could use in their pocketbook. It ’s defeating the purpose you claim that you want to help borrowers. I don't think you would have a rush of foreclosures. Plus, the fund is solid. It’s got more money in it.”
Work on lobbying
White encouraged brokers concerned about this issue or other mortgage issues to get involved in a state, local, or national brokers' association. He plans to return to Capitol Hill soon to continue lobbying for this issue and other housing bills.
“Hopefully I’ll have a meeting set up for the next week or so with the FHA,” he said. “This is going to be a topic of conversation for us. If we get this fixed, more people will want to get FHA loans, which is going to help the FHA fund. Because people steer away from it.”
This won’t be the only time NAMB and the BAC will partner. They announced on Thursday that they are co-hosting their annual advocacy fly-in event in Washington from April 20-22.
“This partnership reflects what our industry needs most right now: unity,” White said. “I think we knew that it's better for us to be working together and coming together as one voice on these big issues. With the legislative issues that are coming up, we need to work together.”
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