WASHINGTON — Two influential housing-industry trade groups voiced alarm this month about the fees borrowers are charged when they take out a mortgage backed by the Federal Housing Administration — a popular source of loans for cash-strapped first-time home buyers.
The National Association of Realtors and the Mortgage Bankers Association wrote to the FHA, asking it to lower the ‘‘annual premiums’’ tacked onto monthly mortgage payments. The agency has raised those fees five times since 2010, from 0.55 percent of the loan’s value to 1.35 percent. Those fees and others are used to cover lender losses when borrowers default on a mortgage. (The FHA itself does not make loans; it insures lenders against losses if the loans go bad.)
The industry groups say the fees have become too expensive, shutting out the borrowers the agency is meant to serve. The Community Home Lenders Association lodged a similar complaint in a letter to the White House this year.
The mortgage bankers group says borrowers who take out a $100,000 FHA loan in 2014 will pay about $600 more in fees each year than they would have in 2008 on a 30-year fixed-rate mortgage.
Still, the FHA is holding firm as the Obama administration pushes to scale back the government’s role in the housing market and protect its coffers.
Here’s what FHA Commissioner Carol Galante told The Washington Post about her agency’s position. The interview has been edited for clarity and length.
Q. Why has the FHA increased the premiums so much?
A. It’s important that every financial institution price properly for the risk it’s taking on. I do think that we have reached a tipping point, though, and I can clearly say we’re not going to continue to increase premiums. But it’s also not the time to do a wholesale rollback of the premiums. FHA’s financial condition is not where it should be yet.
[What this means: When lending sources dried up during the financial crisis, the FHA propped up the housing market by insuring the lenders it works with against losses and enticing them back into the market. But the FHA’s default rate shot up as its loan volume expanded, depleting its cash reserves to levels below what is required by law. In September, the FHA tapped taxpayer money to cover its losses for the first time in the agency’s 80-year history. The president’s most recent budget request projected that the FHA will not need taxpayer dollars to cover losses in fiscal year 2015.]
Q. About 50 percent of all home-purchase loans were backed by the FHA in 2008. The agency’s market share now stands at about 20 percent. Do you think the high annual fees cut into the demand for FHA loans?
A. The last set of premium increases went into effect at the same time that mortgage interest rates jumped, so it’s hard to disentangle how much of the drop is related to premium increases versus interest rate increases. It’s also important to note that activity in the whole mortgage market dropped when interest rates started to go up, so it’s not just FHA volume that’s down.
Q. The Realtors group said high FHA premiums may have shut hundreds of thousands of potential borrowers out of the market, particularly first-time home buyers and minorities. Is the push to reduce the government’s role in the market at odds with the FHA’s mission to serve these groups?
A. They’re not at odds. People generally will be better served in the long run with more robust competition in the private market. FHA, Fannie Mae, and Freddie Mac together support 90 percent of the mortgage market. We want to see more private capital come in because the government is taking nearly all the risk right now. If we can have a system where there is more private-sector capital at risk, that’s greater protection for the taxpayers.
Q. Are there signs that the private sector is coming back into the market?
A. Private-label security is slow to come back. . . . I think there’s a number of reasons why [private-sector participation] is not happening, and frankly, I don’t think most of those have anything to do with the FHA. They have to do with lack of certainty around the future of the housing finance system.