February 26, 2015

FHA’s Middle Class Promise

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Photo: Family is handed the keys to their new home.

Over the last 80 years, the Federal Housing Administration (FHA) has played a critical role in building America’s middle class and has since helped 40 million families become homeowners.

Throughout its long history, FHA has stepped in to take on additional risks to protect the broader housing market.  No one can dispute that during our nation’s most recent housing turmoil, FHA kept the market functioning.  During our economic downturn, FHA suffered higher losses but in the end, FHA did what it was designed and congressionally mandated to do.  Today, FHA is back in the black, growing by $21 billion in the last two years and working to restore its reserves so that it can continue to do what Franklin Roosevelt envisioned more than 80 years ago: facilitate the responsible homeownership for middle class families.

Between 2010 and 2014, FHA increased the premiums borrowers pay each year for mortgage insurance by 145 percent. These price increases were needed to put FHA’s insurance fund back on firm financial footing but it had the effect of pricing many qualified families out of the market.   We were collecting $17,000 from borrowers to ensure loans that cost us $4,500. Now, it’s time to lower those costs. And so, we have.

FHA has cut the cost of its annual premiums for new borrowers by half a percent.  Even with this change, FHA’s annual mortgage insurance premiums will still be 50 percent higher than their pre-crisis levels.  We believe it’s time to reduce our prices to make it possible for nearly quarter of a million credit-worthy families to purchase their first home in the next three years.

Still, there are some who don’t want us to reduce our annual insurance premiums.  These critics claim this is somehow a return to the days of subprime lending when loans were approved for borrowers who had no business buying a home and set the nation on a path to ruin.  This reduction doesn’t change who qualifies for an FHA loan; it only changes the price someone pays for an FHA loan.  Let me be clear – FHA has never, is not, and will never engage in the sorts of lending practices that triggered the housing crisis. Unless one is trying to make a distinction, using the words ‘subprime’ and ‘FHA’ in the same sentence is not factual.  The borrowers that FHA serves are not subprime. They are in fact the prime example of families pursuing the American dream.

Since 1934, FHA has made a pact with the middle class.  If you can responsibly afford to buy a home and make your mortgage payments on time, you have a home with FHA.  This is a promise made during the Great Depression and even after all we’ve been through recently, it holds true today.

Biniam T. Gebre is the Acting Federal Housing Administration Commissioner and Acting Assistant Secretary for Housing.

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