WASHINGTON — President Barack Obama plans to announce Thursday that the Federal Housing Administration will lower the fees it charges borrowers as part of a broader speech about the housing market, which is struggling to fully recover in part because mortgage costs are high and access to credit remains tight for many Americans.
The “annual premiums” on FHA loans, an especially popular source of financing for first-time home buyers and low-income families, have increased five times since 2010. They jumped from .55 percent of a loan’s value to 1.35 percent Wednesday. The president plans to announce that those fees, which are tacked onto the monthly mortgage payment, will drop to .85 percent, according to people who asked not to be named because they are not authorized to speak publicly about the matter.
The president is also to call on the agency to find ways to make it easier for potential borrowers to qualify for FHA mortgages. Since the housing bust, lenders have been turning away buyers by demanding unusually high credit scores on government-backed loans — exceeding even the government’s own criteria — in a bid to insulate themselves from financial penalties. The White House has been alarmed by the reluctance to lend, and it’s pushing FHA to address the industry’s concerns.
The FHA fees issue has been debated internally within the administration for days as pressure to reduce the fees kept building. Real estate industry groups — including the Mortgage Bankers Association and the National Association of Realtors — as well as a number of housing advocacy groups have urged the FHA to consider cutting the fees. They say the surge has shut out a sizeable chunk of potential buyers. The economy heavily relies on the housing sector for growth.
“Assuming this is true, it’s extremely good news for housing, the economy and could not be better timed for the spring market,” said David Stevens, the Mortgage Bankers Association’s chief executive. “This could ultimately be fundamental to a much stronger U.S. economy in 2015.”
The fee increases translated into big bucks for buyers. For instance, a borrower who took out a $200,000 loan paid an annual premium of $91.66 per month before 2010. Now, a borrower who gets a loan of that size pays $225 per month in premiums — a 145 percent increase. Once the lower fees are in place, the monthly payment would drop by $83.
FHA does not make loans. It insures lenders against losses should the loans go bad, and it uses borrower fees to cover those losses. But in 2013, the agency’s cash reserves fell so low that it had to turn to taxpayers for help for the first time in its 80-year history. It drew $1.7 billion from the Treasury.
FHA’s finances took a hit after the housing bust, when many borrowers flocked to the agency for financing because credit was tight elsewhere. The agency’s loan volume soared, but so did its mortgage defaults. The losses eroded the agency’s cash cushion to a level below what is required by law, and it kept raising the fees it charges borrowers as it tried to beef up its cash reserves.
But its finances have improved. The agency recently announced that its reserves are back in the black for the first time in two years, and an independent audit of the agency’s finances predicts that the agency will reach the level required by law by 2016.
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