HUD to Raise Premiums to Bolster FHA Capital Reserves
February 15, 2012
The Department of Housing and Urban Development this week announced budgetary proposals to increase annual insurance premiums for all forward mortgages to help stabilize the FHA insurance fund and avoid a potential taxpayer rescue.
Under the FY 2013 budget plan submitted to Congress this week, HUD proposed to boost capital reserves with a series of premium hikes, starting with the implementation of a 10 basis-point increase approved by Congress with the passage of the Temporary Payroll Tax Cut Continuation Act late last year.
According to its annual actuarial analysis, the FHA has been below the target minimum capital ratio of 2.0 percent since 2009. In 2011, the ratio fell to 0.24 percent from 0.50 percent in 2010.
The 10-bp increase is effective for all FHA-insured single-family forward mortgages and Congress gave HUD two years from the bill’s enactment to make the adjustment.
In addition, the FHA will increase the annual premiums for “jumbo loans” between $625,500 and $729,750 by 0.25 bps. This will result in a total increase of 35 bps for such loans, according to the agency.
HUD also plans to announce off-budget additional premium hikes beyond those contained in the proposed HUD budget. These increases would have been much larger had the $25 billion servicing settlement agreement between the 49 state attorneys general and their federal counterparts with the five largest mortgage servicing banks in the country not been completed.
As part of that global resolution of alleged foreclosure and servicing abuses, Bank of America agreed to pay HUD up to $1 billion to resolve claims against BofA and its mortgage subsidiary, Countrywide Financial Corp., for alleged underwriting and mortgage origination fraud.
HUD Secretary Shaun Donovan said that the FHA estimates to recover anywhere from $900 million to $1 billion from BofA, which would place FHA’s capital reserves above the statutory level. Additional revenues for FHA may come after further settlement talks with nine other large mortgage servicers that participated in the initial discussions with state and federal law enforcement agencies.
“All these actions will ensure that the FHA fund will be secure and that private capital will continue to return to the mortgage market,” Donovan said.
Other areas of interest
- Mortgage Originations
- Mortgage Insurance
- FHA, VA
- Regulations
- HUD
- FHA Lenders
- FHA Programs
- Nonconforming
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