The Federal Housing Administration (FHA) was formed in the aftermath of the Great Depression to create a stable mortgage market and support homeownership. Decades later, the Department of Housing and Urban Development (HUD) was established through the Civil Rights Act of 1968 to ensure Americans have access to affordable housing. With the collapse of the private mortgage market and our nation’s ongoing economic recovery following the Great Recession, the importance of HUD has never been more apparent. Care must be taken to protect FHA’s ability to facilitate safe, affordable mortgage financing to American families.
- Reduce mortgage insurance premiums and eliminate the life-of-loan mortgage insurance premium
FHA mortgage insurance premiums have reached historically high rates. After the recession, FHA raised premiums to shore up its capital reserves, but the current strength of the FHA fund demonstrates that premium changes should be re-examined. FHA should also eliminate the requirement that borrowers pay mortgage insurance for the life of the loan. Once a borrower reaches 78 percent LTV, there is sufficient equity in the home that even if the homeowner eventually defaults, the value of the home in combination with the premiums paid in advance will cover any losses to the Mutual Mortgage Insurance Fund. Congress understood this principle and enacted the Homeowners’ Protection Act in 1999, which requires lenders to automatically cancel private mortgage insurance for borrowers who achieve sufficient equity. Why should FHA borrowers be denied the same relief from excess insurance? FHA should reduce mortgage insurance premiums and reinstate cancellation of annual mortgage insurance premiums for all borrowers that reach 78 percent LTV. This will reduce borrowers’ monthly payments and provide them with more cash to better withstand economic shocks and reduce defaults.
- Implement changes to FHA condominium approval process
Condominiums are often the most affordable homeownership option for first-time buyers, small families, single people, urban residents and older Americans. Unfortunately, current FHA regulations prevent buyers from purchasing condominiums, harm homeowners who need to sell their condominiums, and limit the ability of condominium projects to attract resident buyers. Recognizing these difficulties, FHA issued a proposed rule last fall that offers changes to the condominium approval process. While a good first step, FHA must issue a final rule and offer additional policy changes. NAR supports the re-introduction of spot loans without restrictive qualifications and further easing of the condominium project re-certification process. NAR urges FHA to increase the allowable commercial space in a project and reduce the required percent of owner-occupants, opening up many more condominiums to worthy buyers.
- Affirmatively further fair housing
The Fair Housing Act requires HUD to administer its program in a manner that affirmatively furthers fair housing. While the current regulation outlines an effective process for communities to address their unique fair housing issues, NAR expressed concerns that HUD, in some instances, proposed specific policies for local communities to adopt, and did not give enough time for full public participation in the process. When communities receive HUD housing and community development funding, HUD must take steps to ensure communities are addressing fair housing issues; however, communities should develop fair housing strategies on a local level.
NAR looks forward to working with the new administration to keep HUD and FHA strong and healthy, promoting homeownership across the nation.
Sehar Siddiqi is a federal housing policy representative for the National Association of REALTORS®.
This column is brought to you by the NAR Real Estate Services group.
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