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Home >> Daily Dose >> Republicans Urge Against FHA Premium Reduction
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Republicans Urge Against FHA Premium Reduction

writing-on-paperCiting concerns about the Federal Housing Administration's (FHA) low capital reserve ratio and its 2013 bailout, senators Bob Corker (R-Tennessee) and David Vitter (R-Louisiana) are calling on the Obama administration to reconsider its plan to cut FHA's annual mortgage insurance premium by half a percentage point.

In a letter penned to HUD Secretary Julian Castro, the senators say they are "deeply concerned" about the recently announced plan to cut FHA yearly premiums to 0.85 percent, especially as it comes only a little more than a year after the agency was forced to take a $1.7 billion bailout—the first in its history.

Adding to their concerns, Corker and Vitter note that the bailout funds are included on FHA's balance sheet in its 2014 actuarial report and that there are no plans currently in place to pay it back, making plans to reduce its borrower costs "premature."

"When assessing the health of FHA's balance sheet, we must remember that it is currently being bolstered by a bailout with no plans of repayment," they wrote.

While the president's administration touts the premium reduction as a step taken to help first-time and low-income homebuyers secure access to mortgage credit, some see it as a move to restore FHA's share of the mortgage market, which has fallen in recent years as the agency raised costs.

That argument is bolstered by its timing, just a month after Fannie Mae and Freddie Mac announced plans to introduce programs with down payment requirements as low as 3 percent. The current minimum down payment for an FHA loan is 3.5 percent.

"Instead of better protecting taxpayers from incurring losses through these government initiatives during a future economic downturn, the government is involved in a race to the bottom by reducing taxpayer protections to expand government credit guarantees," the senators' letter reads.

The two also point out that the capital reserve ratio of FHA's insurance fund is 0.41 percent, putting it well below its 2 percent statutory minimum.

In an independent report, auditors estimated last year that the fund will reach its mandated 2 percent level in fiscal year 2016. In a press call on Friday morning, Castro said he anticipates the recent policy change may set back that target by a few months but shouldn't have a major effect.

Nevertheless, the senators aren't convinced.

"Both Senate and House mortgage finance reform proposals demonstrate bipartisan belief that capital levels are inadequate now," they wrote. "Years into the recovery, we need to be aware: if the economy catches a cold, FHA catches pneumonia."

Corker and Vitter aren't the only Republicans who have been vocally against the premium cut. In a statement, House Financial Services Committee Chair Jeb Hensarling (R-Texas) criticized the plan, promising to bring Castro before the committee to question the decision and FHA's financial condition.

"The American people want an end to the destructive cycle of boom, bust and bailout that poor decisions in Washington produce," he said. "If President Obama follows through on today's pledge, he will be increasing the likelihood that taxpayers will have to foot the bill for yet another bailout."

About Author: Tory Barringer

Profile photo of Tory Barringer
Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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