FHA loans more affordable

Aims to limit mortgage insurance premiums for FHA borrowers. The House Financial Services Committee passed a bill Wednesday that will limit mortgage insurance payments on loans backed by the Federal Housing Administration.

FHA loans more affordable

The bill – H.R. 3141, “The FHA Loan Affordability Act of 2019” – would repeal FHA’s policy that requires borrowers to pay mortgage insurance for the life of the loan. Instead, payments would cease when the outstanding loan balance reaches 78% of the home’s original value.

But this isn’t the first time a bill for FHA Loans has made its way to the House.

Back in October 2017, Rep. Maxine Waters, D-CA, proposed nearly identical legislation to terminate FHA’s life of loan requirement, however the bill neglected to take off, despite the fact that Waters had nine trade groups backing it.

Actually, the FHA used to cap insurance payments at this 78% threshold but changed its policy back in 2013 in an attempt to enhance the health of its flagship insurance fund.

They needed a $1.7 billion bailout in 2013, as a result of significant shortages in the FHA’s MMI Fund. Since then, the fund has found solid footing, and many in the housing industry are strengthening their call to ditch the life of loan policy and minimize the cost of FHA financing to borrowers.

And now, with the MMI Fund on better footing, lawmakers are again pushing for the removal of the life of loan policy.

The Community Home Lenders Association expressed its support for the bill, calling the FHA’s current policy discriminatory against borrowers.

“The FHA Life of Loan policy is unfair to FHA borrowers because it significantly overcharges them,” the CHLA wrote, estimating the additional cost to be $15,000.

“This is a significant impediment to asset building, and results in total premiums that are wildly disproportionate to the risk a loan poses to FHA,” the group stated, adding that the policy is hurting the FHA’s financial performance.

“The Life of Loan factor can tilt a borrower to a refinance out of FHA and into a conventional loan, even when the savings are limited and the traditional wisdom about refinancing calculations argue against a refinance,” the group wrote. “The result is that FHA loses many seasoned loans, along with the revenue that goes with those loans.”

The bill was introduced by Rep. Dean Phillips, D-MN, and was passed out of the committee by a vote of 34 to 25. Next, it’s going to move on to the House floor.

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