Last month, the POTUS announced that HUD was reducing FHA monthly mortgage insurance premiums in an effort to make home financing more affordable for more consumers. In previous posts I have posited that this action was necessary to stimulate FHA loan volume and fill the coffers of the floundering MMI (Mutual Mortgage Insurance) Fund.
How HUD And The FHA Are Hurting Our Economy on 11/17/2014, HUD Commissioner Wrong About FHA Insurance on 05/08/2014 and FHA Mortgage Insurance Is Just Too Expensive on 04/11/204, all argued for exactly what happened last month except for more aggressive reductions.
So what happened?
To be clear, mortgage refinance applications of all kinds have surged due to recently declining interest rates. However, purchase applications are not necessarily driven by interest rates and certainly with overall purchase applications declining, there would need to be a reason that FHA purchase applications actually increased.
The only thing that has changed in the FHA financing landscape is the new, lower monthly mortgage insurance premiums. Ergo, FHA purchase loan volume has increased as a result of the reduction in FHA mortgage insurance premiums! Period.
Last April I was beating the drum for all those smarter-than-me HUD people to “lower MIP premiums to increase housing affordability and accelerate loan volume,” and last May I argued that “Now is in fact the time to roll back those premiums, the housing markets are a powerful economic engine that can deliver real economic growth.”
And even though my voice carries no weight in these matters, Commissioner Galante had the courage and the smarts to change direction in HUD’s strategy and it is working.
Matt Gratalo of Homebridge Financial Services is a mortgage industry veteran with significant FHA experience, and according to Matt; “The reduction in FHA mortgage insurance Premiums has definitely resulted in an increase in the number of buyers choosing FHA financing. In many cases buyers with average or below average credit scores are finding their payments are lower with FHA loans then they would be with conventional loans. The decrease in the cost of FHA mortgage Insurance is enabling more first-time buyers to enter the market.”
HUD and Commissioner Galante would do well to consider gathering intelligence from the field; people like Matt Gratalo and others like him hold a wealth of “boots-on-the-ground” information that may contribute a real time, real life element to strategic policy going forward.
Think about it, if reducing monthly mortgage insurance premiums by just 50 basis points can have such a dramatic impact on purchase loan volume, imagine if the Up Front Mortgage Insurance Premium was reduced from the current 1.75% to 1.25% or even 1.00%. Dare I say we might see a MMI Fund surplus, increased home ownership affordability leading to increased housing markets activity driving our overall economy into real growth?
Nah . . . that could never happen.
