Tag: mortgage insurance premium

Statement: House Tax Reform Legislation

Posted on by dcadmin

WASHINGTON — U.S. Mortgage Insurers (USMI) President and Executive Director Lindsey Johnson issued the following statement on H.R. 1, the “Tax Cuts and Jobs Act,” the comprehensive tax bill released by the U.S. House Ways and Means Committee yesterday:

“USMI is encouraged by efforts in Congress to simplify the current tax code for everyday Americans and to promote economic growth. Comprehensive tax reform holds the promise of allowing Americans to keep more of their hard-earned money, modernize the tax code to help working families and spur economic growth.

“The House Republican proposal represents an important start towards putting the American tax system on a more simple and sustainable path, but USMI is concerned that the current draft excludes the premiums paid by borrowers for mortgage insurance as part of the definition of ‘mortgage interest.’ Since 2007, the deductibility of mortgage insurance premiums has provided helpful tax relief for millions of middle class homeowners with low and moderate incomes. IRS data from 2015 show the mortgage insurance deduction was claimed on 4.1 million tax returns that year—the vast majority of those returns had incomes ranging between $30,000 and $100,000. This is clear evidence that this specific tax deduction should be preserved because it helps make homeownership more affordable for Americans who value and need this help the most. So long as mortgage interest remains tax deductible, as is the case in the House legislation, so too should mortgage insurance.

“We understand comprehensive tax reform is as challenging of an undertaking as it is important—and we know there are difficult choices that have to be made throughout the process. USMI supports many of the stated objectives of tax reform, but is concerned that current and prospective low- and moderate-income homebuyers will lose an important deduction that they have come to build into the cost of their mortgage. Therefore, USMI will continue to work with House and Senate leadership to ensure the final tax reform package includes this important provision aimed at helping bring down borrowing costs for responsible taxpayers who need it most.”

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U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at www.usmi.org.

Blog: How to lower your monthly mortgage payment

Posted on by Rhina Portillo

Owning your own home comes with many advantages, including escaping rising rents and the personal and financial stability associated with homeownership. Fortunately, millions of Americans, with less than 20 percent down, have been able to buy a home sooner thanks to mortgage insurance (MI). If you don’t put down 20 percent of the mortgage cost, you will likely be required to purchase MI, which enables low-down-payment borrowers to qualify for home financing from lenders.

While homeownership has many benefits and continues to be part of the American Dream, it is not without costs. Several surveys have found that the majority of first-time homebuyers — over 80 percent according to one study — put less than 20 percent down. For these borrowers, there is usually the added expense of MI, which may give some of these borrowers pause.

But there is good news: the monthly private mortgage insurance premiums do not last forever on most conventional loans. And when private MI (PMI) cancels, homeowners will have more cash in their pockets each month — money that is available for home improvements or other goals. It is important to understand, however, that not all MI is the same, and not all MI can be canceled.

There are numerous low-down-payment mortgage options available that include MI. The two most common are: (1) home loans backed 100 percent by the government through the Federal Housing Administration (FHA) that include both an upfront and annual mortgage insurance premium (MIP); and (2) conventional loans, which are typically backed at least in part by private sources of capital, such as private MI. The key difference is that one form can be canceled (PMI) while the other (FHA) typically cannot be canceled.

An FHA loan can be obtained with a down payment as low as 3.5 percent. However, be aware that you will typically have to pay a mortgage insurance premium (MIP) of 1.75 percent of the total loan amount at closing or have it financed into the mortgage. In addition to your regular monthly mortgage payments on your FHA loan, you will also pay a fixed monthly MIP fee for the life of the loan. This means you could pay hundreds of dollars extra every month — thousands over the life of the loan — until you pay off the entirety of the loan.

If you obtain a conventional loan with PMI, you can put as little as 3 percent down. Like an FHA loan, PMI fees are generally factored into your monthly mortgage payment. However, PMI can often be canceled once you have established 20 percent equity in the home and/or the principal balance of the mortgage is scheduled to reach 78 percent of the home’s original value. This means that the rest of your mortgage payments will not include any extra fees, so that your payments go down in time, saving you money each month. What you save in the long run can then be put toward expenses like home renovations, which can further increase your home’s value.

MI is a good thing because it bridges the divide between a low down payment and mortgage approval. But not all MI is created equal. If you want to buy a home but still save in the long run, PMI might be the right option for you. Check out lowdownpaymentfacts.org to learn more.

Statement: Requests to Reduce FHA Mortgage Insurance Premiums

Posted on by Rhina Portillo

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USMI Statement on Requests to Reduce FHA Mortgage Insurance Premiums

WASHINGTON — Over the last couple of weeks, there have been requests, including from some trade organizations and Democratic members of Congress for the U.S. Department of Housing and Urban Development (HUD) Secretary Ben Carson to reinstate a cut scheduled under the Obama Administration to the Federal Housing Administration (FHA) mortgage insurance premiums (MIP). The following statement can be attributed to Lindsey Johnson, USMI President and Executive Director:

“Helping creditworthy homebuyers qualify for mortgage financing despite a low-down payment is good policy. It is precisely why conventional loans with private mortgage insurance (MI) and the government-backed FHA loans exist. However, reducing FHA premiums is neither necessary nor prudent at this time. Credit remains available for these borrowers in the conventional market, where the risk is backed by private capital, such as MI. A FHA premium reduction will only draw borrowers served in this market over to the FHA, where the risk is 100 percent backed by the government and taxpayers.

“The FHA has and continues to serve an important role in the housing finance system. While the financial health of the FHA has improved since the financial crisis, it is by no means in a position to have the fees it charges for the insurance it provides reduced. Taxpayers are currently exposed to more than $1 trillion in mortgage risk outstanding at the FHA. This would only increase if FHA premiums were reduced.

“Rather than reduce premiums, the FHA should continue to make the needed improvements to its financial health. Policymakers should also work to establish a more coordinated and transparent housing policy that will promote increased access to low down payment lending while at the same time decreasing the federal government’s role in housing, such as reducing or eliminating the GSEs’ loan level price adjustments (LLPAs)—a more effective and prudent means for improving access to mortgage finance credit. Further, we strongly urge against any change to FHA’s life of loan coverage. Unlike private MI, which is cancellable, FHA’s insurance coverage does not go away—thus, taxpayers are on the hook for FHA-insured mortgages for the entire life of the loan.

“Private capital can and should play a leading role in insuring low down payment mortgages so the government and taxpayers are protected from mortgage credit risk. Past FHA commissioners strongly agree with this sentiment. For over 60 years, private MI has been a time-tested and reliable way for Americans to become homeowners sooner—with more than 25 million borrowers helped to date. USMI looks forward to working with all interested parties in Congress and the housing market to ensure we create a housing finance system that protects taxpayers while also promoting homeownership throughout the country.”

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U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at www.usmi.org.

Blog: What HUD’s Suspension of FHA MIP Rate Cut Really Means

Posted on by dcadmin

On Friday, January 20, 2017, the new Administration’s U.S. Department of Housing and Urban Development (HUD) suspended a January 9 announcement by the outgoing Obama Administration’s HUD and its Federal Housing Administration (FHA) regarding a planned reduction in FHA mortgage insurance premiums (MIP) for borrowers. (Note: the FHA is a 100% government-backed mortgage insurance program that, just like private mortgage insurance, guarantees mortgage lenders against default risk particularly for home loans originated with low down payments.)

The FHA MIP reduction was to take effect on January 27. Given the haste of this announcement, the incoming Trump Administration at HUD suspended this decision as to provide incoming officials sufficient time to better understand the potential impact—good and bad—such a reduction would have on the market.

There have been a number of reports and opinions shared on the recent suspension—and not all of them accurate. Below are additional facts and information on the decision to suspend the not-yet implemented premium reduction.  We hope you find it helpful. Please don’t hesitate to let us know if you have any follow up questions. Feel free to email us at media@usmi.org.

1. HUD’s decision does not raise the cost of homeownership in any way. The proposed FHA MIP reduction was announced by outgoing Obama HUD officials on January 9 and was scheduled to take effect on January 27. This proposed 25 basis points (bps) reduction has been suspended and, therefore, means there is no change to FHA premiums for new mortgage originations or refinances FHA mortgages. Since FHA premiums remain the same, the costs of an FHA-backed mortgage do not increase at all.

While some have been quick to criticize HUD’s recent action with politically-charged rhetoric, this is not a political or partisan issue. As noted in a January 24 Washington Post editorial, “the Obama administration itself increased this [FHA] fee four times between 2010 and 2013” before lowering the fee by 50 bps in 2015. The Washington Post goes on to say, “given recent financial instability—both at FHA and in housing generally—the new administration was perfectly justified in undoing it.”

2. With or without an FHA-insured option, there is wide availability today of low down payment mortgages backed by private mortgage insurance. Homebuyers have options; this includes low down payment mortgages with private mortgage insurance (MI). Unlike FHA-backed mortgages, the risk contained in loans guaranteed by private MI is not 100% exposed to the government and taxpayers. Private mortgage insurers put their own capital ahead of taxpayers to back mortgages that help homebuyers qualify for mortgage financing despite a low down payment or imperfect credit.

3. When comparing apples to apples, a low down payment mortgage backed by private MI is a better deal for homebuyers compared to FHA. First, cash for a down payment can be less for a private MI conventional mortgage compared to an FHA loan. Second, private MI can be cancelled thus lowering the monthly bill while FHA premiums generally must be paid for the full life of the mortgage.

In contrast to FHA insurance, private MI can be cancelled once borrowers have established 20% equity (through payments or home price appreciation). Ninety percent of borrowers cancel their private mortgage insurance within the first 60 months (five years). Why pay FHA insurance for another 25 years on a 30-year mortgage if it’s not necessary? The savings over time are significant.

The minimum down payment for FHA is 3.5% while a conventional private MI-backed mortgage can be originated with as little as 3% down. On a $234,900 home purchase (national median in December 2016), with a 4.25% interest rate for conventional and 4% for FHA, the FHA loan requires $1,175 more for down payment than the private MI loan. This goes to show that even with a higher interest rate the conventional loan still may be a better deal.

4. Experts (see below) point out that the FHA was stretched to the brink for nearly a decade, through the financial crisis, ultimately requiring a $1.7 billion taxpayer bailout. These experts argue that the capital levels required of FHA to shield taxpayers against losses, which is a thin 2% to begin with and has been underwater for several years, should not be thinned-out so quickly after it’s been restored back to health.

  • Housing policy experts at the Urban Institute debunk some of the quick claims about the negative impact of this HUD action. In a new blog they state: “A close look at the planned price reduction, however, reveals that the impact on the market would have been small and retaining the current price to help shore up FHA funds for a rainy day is a more prudent choice.” They also caution that the new lending volume at FHA would not come from unserved borrowers or homebuyers left on the sidelines, but instead borrowers already served by the low down payment conventional market.
  • On the opposite side of the political spectrum, scholars at the American Enterprise Institute (AEI) agree with Urban Institute on the forestalled FHA premium reduction. AEI scholars note that the last time FHA cut fees in 2015 it did not result in serving a new, previously unserved universe of homebuyers. AEI found, “almost half of these buyers— attracted by FHA’s lower monthly payments—were poached from other government agencies, mainly Fannie Mae or Freddie Mac. We also estimate that another third of the 180,000 buyers would have entered the market regardless of the lower premium, because an improving economy was raising incomes and lowering unemployment across the nation.”

5. Given privately insured mortgages are widely available and therefore homebuyers have options beyond FHA, the government program does not need to potentially increase risks to the American taxpayers. Below is a statement by Lindsey Johnson, USMI President and Executive director.

“HUD’s action allows the incoming Administration appropriate time to begin its work and to determine if an FHA mortgage insurance premium reduction is needed, and how it might expose taxpayers to undue risk. Given the wide availability of MI-backed low down payment mortgages and the fact that private MI is a better deal for borrowers over FHA since it can be cancelled, which in turn lowers monthly payments while FHA insurance must be paid for the life of the loan, there is no need for FHA to undercut the private market. While the FHA serves an important role in the housing market, it has expanded its footprint dramatically since the financial crisis and should instead remain focused on its core mission of serving underserved borrowers. USMI has and will continue to work with policymakers and housing officials to establish a more coordinated housing policy that will ensure broad access to low down payment lending while reducing the government’s footprint in housing and protecting taxpayers.”