The Three Percent Solution

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30 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ORIGINATION The LaTesT FHa cost cut draws Wildly Mixed reaction Response to the agency's premium reduction is positively bipolar, with policymakers, politicians, lenders, and real estate agents picking sides. l ate last month, the Federal Housing Administration (FHA) cut its mortgage insurance premiums to 0.85 percent, a 0.5-percentage point drop meant help loosen lending and stimulate the housing market. The FHA had raised premi- ums in response to its declining mortgage insurance fund, which forced the agency to take a $1.7 billion taxpayer bailout in 2013, the first in its history. Annual premiums were increased to 1.35 percent to help replenish the fund after it fell into negative ter- ritory following the default crisis. With its capital rebuilt, some commentators said the time was right for a cut. In announcing the rate reduction in early January, the White House estimated that it will translate to a $900 savings in annual mortgage payments for first-time buyers, with existing homebuyers expected to see similar drops. "This step is part of the presi- dent's broader effort to expand responsible lending to creditwor- thy borrowers and increase ac- cess to sustainable rental housing for families not ready or wanting to buy a home," according to a statement issued by the White House. It added that the Obama administration "will be taking additional steps to cut red tape and clarify lending standards" in the coming months. In a separate statement made on the same day, HUD Secretary Julián Castro said the change will make homeownership more affordable for millions of Americans in the next three years. Within a day of the an- nouncement, politicians and commentators wrestled with the reduction's potential impact on the housing market, the mort- gage insurance industry, and the agency itself. As expected, the most positive reactions to the news came from the trade groups who have been pushing for FHA to lower pre- miums now that its loan insur- ance fund is back in the black. "We are optimistic that more affordable FHA loans will have a positive impact on first-time buy- ers who have been entering the market at a lower-than-normal rate," said Chris Polychron, presi- dent of the National Association of Realtors, in a statement. The group estimates that nearly 234,000 creditworthy borrowers were priced out of the housing market last year as a result of the higher premiums. Speaking for the Mortgage Bankers Association (MBA), chairman and CEO Bill Cosgrove offered a similarly hopeful response: "As an independent mortgage banker whose business includes a significant amount of FHA lending, I can attest that the 50-basis-point reduction in FHA's annual premium will have a significantly positive impact for my borrowers and the housing market," he said. "Given the tim- ing, just as we begin the spring homebuying season, I think to- day's announcement is just what the market needs." Less enthusiastic about the news were private insurers, who stand to lose some of the market share they gained in the last few years as FHA loans became more costly. U.S. Mortgage Insurers (USMI), a trade group representing some of the country's largest insurers, called for policymakers to "pro- ceed cautiously," citing the fund's still-fragile status and FHA's stated objective to reduce its pres- ence in the mortgage market. "Mortgage insurers putting their own capital risk should be pre- ferred to government risk taking,

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