President Obama’a announcement yesterday that the Federal Housing Administration (FHA) was cutting premiums 50 basis points to 0.85 percent, was met with applause through both the for-sale and affordable housing communities. That’s not surprising since the move could open the home ownership door for entry-level and buyers of modest means by reducing payments by up to $900 a year, according to the White House.
To put this savings in everyday spending terms, Lawrence Yun chief economist at the National Association of Realtors, argues that the savings in FHA premiums is similar to the savings consumers are getting through lower energy costs. Over a year, that can mean real savings for first-time buyers.
“FHA is principally catered to moderate income first buyers so this is great news for people in that segment,” Yun says.
Bradley Hunter, chief economist and director of consulting for Metrostudy, thinks the FHA move could help pave the way for a more complete housing recovery.
“At this stage, any help is welcome,” he says. “Mortgage availability is still a very serious impediment to a full housing recovery, and FHA is in a position to be of great help. This move does represent further progress.”
The National Association of Home Builders (NAHB) had similarly positive feelings, noting the move should help to make home loans more affordable, particularly for first-time buyers, and help alleviate tight credit conditions.
“This prudent course reflects a recent actuarial report that FHA is back in black and strengthening its financial health," said Kevin Kelly, chairman of NAHB and a home builder and developer from Wilmington, Del. in a prepared statement. "The new premium structure will allow FHA to continue building its reserves.”
And while the FHA move will help first-time home buyers, it will also help the agency to compete more effectively with Fannie Mae and Freddie Mac, especially given their new 97 percent loan-to-value programs, according to a note from financial advisory firm Raymond James.
But not everyone agrees the FHA is in a financial position to lower premiums. In a statement released January 7, House Financial Services Committee Chairman Jeb Hensarling (R-TX) argued that the decision to lower premiums could put FHA at risk, which ultimately hurts the ability of low-income families and first-time buyers to get loans.
“It was just two years ago that taxpayers had to bail out the FHA to the tune of $1.7 billion, and just two months ago an audit revealed that FHA is still in violation of federal law because it does not maintain sufficient capital reserves,” Hensarling said in the statement. “Lowering premiums now would only put the FHA further behind. A fiscally sound FHA, with a clearly defined mission, ensures home ownership opportunities for creditworthy first-time home buyers and low-income families. Any effort to lower FHA premiums would be counterproductive to achieving these goals and would place the U.S. taxpayer at greater risk."
It's Only Part of the Solution
Even the affordable housing community had positive reviews, though there was a caveat. “Enterprise commends this administration for shining a spotlight on the need for housing early in 2015 and for its efforts to lower the Federal Housing Administration’s fees charged to credit worthy low- and moderate-income home buyers,” said Ali Solis, senior vice president of public policy and corporate affairs at Enterprise Community Partners in a written statement. “This will assist families as affordable home ownership will help address our nation’s growing housing insecurity crisis, but it is only part of the solution.” Solis urged the administration to remember preservation of affordable rental housing with one in every four renter households spending at least half of their monthly income on rent. “Affordable rental housing needs to be preserved as a critical option for the unprecedented number of families in the U.S. living on the brink of homelessness,” Solis said.