Julian Castro, Secretary of Housing and Urban said today that the reduction of FHA annual premiums has nothing to do with competition from Fannie Mae and Freddie Mac. The 50 basis point reduction in annual mortgage premiums announced by Castro earlier this month, is effective for loans with case numbers issued starting today.
Castro told a panel on CNBC’s Squawk Box that the rollback is about maintaining a balance between keeping FHA’s Mutual Mortgage Insurance fund strong and fulfilling FHA’s traditional mission of providing homeownership opportunities for first time homebuyers and middle class families
Castro said the FHA’s last annual report in November showed that over the last few years the fund had gained $21 billion in value. Since the beginning of the recession the annual premiums have increased 145 percent. “We at HUD call ourselves the Department of Opportunity,” Castro Said. “This is a very prudent step in the direction of providing an opportunity for middle class families to own a home.” He said the premium cut will save an average of $900 a year for about two million homeowners, and spur 250,000 new first time homebuyers to buy over the next 3 years
Moderator Diana Olick asked Castro if, while the reduction could make home buying more affordable “’around the margins,’ don’t you really have to do this because you are in danger of losing some of your best borrowers to the GSEs with their new 3 percent loans because they are going to cost less? And you need those excellent borrowers you have now for the health of the fund or you could go right back into the red again.”
Castro said, “Surely Director Watt and the people at (the Federal Housing Finance Agency) FHFA are doing some very noteworthy things but that isn’t the ultimate driver of this. What is driving it is what is in the best interest of the fund and what is in the best interest of helping middle class families buy a home.”
Another panelist noted that, when the recession hit, “Obviously the pendulum swung too far” and it became very hard for people with credit scores under 700 or who were unable to save enough for a down payment to buy a home. But FHA has had problems itself, she said, it needed a $1.7 billion bailout in September of 2013. “How do you convince people it is time to swing the pendulum back?”
Castro responded that first FHA wasn’t changing who qualifies for a loan, “this is a matter of affordability.” Even with the reduction, premiums will still be 50 percent higher than a few years ago before the recession and FHA forecasts that the fund will still see $7 to $10 billion in growth over the next four years. “This puts us on a very strong trajectory to get to the 2 percent cash reserve” which FHA is mandated by Congress to maintain.
