FHA doesn't want to crowd out the return of the private market

FHA Shying Away from Risk-Based Pricing

December 2, 2009

The Federal Housing Administration wants to stay
away from traditional risk-based pricing for mortgage
insurance premiums, saying it doesn't want the government
to compete against private sector MI firms. Lowering prices
for the least risky borrowers could have the effect of
"potentially crowding out the return of a private market"
or delaying its return, HUD secretary Shaun Donovan told
a congressional panel. FHA officials are planning to raise
the upfront premium or the annual premium - or both. The agency
willunveil details of their proposal in January. In determining
the premiums, they want to employ some combination of credit
scores, loan-to-value ratios and other underwriting criteria
that would limit the entry of the riskiest borrowers into
the FHA fund. For example, FHA might raise the downpayment
for borrowers with low FICO scores. "We also have to be careful
about overpricing risk," secretary Donovan testified. He noted
new FHA originations are "quite profitable."

FHA Mortgages are Changing...

FHA Will Hike Premiums, Credit Scores and More

December 2, 2009

The Federal Housing Administration is asking for an increase in mortgage insurance premiums to replenish its diminishing capital reserves while hiking credit scores for applicants. Housing secretary Shaun Donovan will ask Congress Wednesday afternoon to raise the 55-basis point cap on annual government MI premiums. Administratively, FHA officials are expected to raise the 1.75% upfront premium and prohibit those points from being rolled into the loan amount. (The agency does not need Congressional approval to raise upfront premiums.) Even though it is hiking loan costs, HUD will allow the upfront premium to be priced into the interest rate. It also will allow home sellers to pay the premium. "The good news is that they are doing this administratively and taking leadership," said Brian Chappelle, a mortgage-banking consultant with Potomac Partners. As the health of the mortgage insurance fund improves, FHA can reduce the premiums and other restrictions, he added.