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Home >> Daily Dose >> Rep. Hensarling Decries FHA’s Premium Reduction
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Rep. Hensarling Decries FHA’s Premium Reduction

money-houseThe Federal Housing Administration’s announcement earlier this week to lower its mortgage insurance premiums by 25 basis points drew praise from many in the industry.

With the FHA’s Mutual Mortgage Insurance Fund at an economically healthy level and borrowers facing higher mortgage rates in the coming year, HUD Secretary Julián Castro said he believed that this was the right time to reduce mortgage insurance premiums for the first time in two years as the Obama Administration nears its final days.

Not everyone praised the move, however. House Financial Services Committee Chairman Jeb Hensarling (R-Texas), one of the most vocal critics of the last mortgage premium reduction two years ago, spoke out in opposition of the move to reduce the fund as both Obama’s presidency and Castro’s tenure as HUD Secretary wind down.

“It seems the Obama administration’s parting gift to hardworking taxpayers is to put them at greater risk of footing the bill for yet another bailout,” Hensarling said of the latest reduction. “Just three years ago the taxpayers had to spend $1.7 billion to bail out the FHA. Lowering premiums to below market rates now only puts the FHA in a more precarious financial condition.”

The FHA raised the mortgage insurance premiums several times in the aftermath of the crisis as it sought to reduce risk in the mortgage market, which resulted in higher capital reserves but also increased costs to borrowers. Two years ago, when the FHA lowered the premiums by 50 basis points, the MMIF’s capital ratio was 0.41 percent, less than one-quarter of the Congressionally-mandated 2 percent threshold. Since 2012, however, the fund has gained $44 billion in value is above the 2 percent level.

“Playing politics with the FHA through cynical, surprise 11th hour rule changes is irresponsible and endangers the integrity and success of the FHA,” Hensarling said. “To be successful, the FHA must be fiscally sound, with a clearly defined mission, to ensure homeownership opportunities for creditworthy first-time homebuyers and low-income families. Lowering FHA premiums now is counterproductive to achieving these goals and puts the U.S. taxpayer at greater risk.”

The FHA estimates the latest reduction will save homeowners around $500 annually.

“This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers,” Castro said earlier this week.

About Author: Brian Honea

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Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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