Back in February, the Department of Housing and Urban Development (HUD) announced it would raise mortgage insurance premiums on several Federal Housing Administration (FHA) loan programs, including for some of its healthcare facility loan programs widely used in the senior housing industry. Several industry trade groups, including the American Seniors Housing Association, the National Association of Home Builders, and the Mortgage Bankers Association recently wrote a letter to HUD in response to the notice, saying it doesn’t believe the agency has provided “compelling justification” for the increases.
HUD said it was raising premiums to provide “additional protection” for the General Insurance/Special Risk Insurance Fund, increase receipts to the Treasury, and encourage private lenders back into the market by offering less competitive terms.
But the trade groups aren’t content with those reasons.
“The purpose of the MIPs is not to increase receipts to the Treasury, nor to adjust FHA’s pricing of credit risk relative to current private market pricing,” the trade groups wrote in the letter. “Increasing the MIPs will not serve to build a buffer against future losses, because there is no segregated fund and excess income is returned to the Treasury each year.”
Additionally, raising those premiums will serve to add to property owners’ costs which in turn will force rents still higher—especially in the current economic environment, the the letter pointed out.
The groups also disagrees with HUD’s plan to funnel funds from higher premiums (above what is actually needed to operate the programs) into the Treasury.
“We believe that such action sets a precedent for poor public policy making and has a significant negative impact on national housing policy,” the letter reads. “We do not support raising the cost of producing rental housing and health care facilities to raise money for purposes unrelated to these programs.”
Beyond that, data regarding the Federal Housing Administration’s role in the multifamily market “demonstrate that FHA is operating as it was designed to operate, providing liquidity when other market participants are pulling back and decreasing its market share as other lenders return to the market.”
The mortgage insurance premiums are supposed to be based on managing the government’s risk of the potential and severity of mortgage losses, and that’s how it should continue to be, according to the housing and mortgage associations, and HUD isn’t supposed to adjust its pricing relative to current private market rates, or to increase funds for the Treasury.
The fact that many multifamily mortgage insurance programs have demonstrated a strong performance and have already undergone changes for tightening credit reviews, underwriting, and loan requirements all runs counter to HUD’s reasoning for raising premiums, according to the associations.
Ultimately, the letter urges HUD to maintain mortgage liquidity by not implementing changes at this point.
Read the full letter here.
Written by Alyssa Gerace