The Community Home Lenders Association wants the Obama administration to reduce the annual premium on FHA-backed home purchase loans.
Currently at 1.35 percent, the annual fee is the highest it has ever been. FHA has raised the cost over several years to cover loan losses and to re-capitalize its mortgage insurance fund, but the agency is estimated to net a $14 billion profit in fiscal year 2014.
Low mortgages rates made the high annual premiums manageable for borrowers, but interest is now moving higher. The high annual premium "directly affects debt-to-income ratios, making loans and home purchases less affordable," says the trade group representing small and mid-sized community-based mortgage lenders. It suggests reducing the annual premium to 0.7 percent or 0.5 percent for borrowers who complete pre-purchase homeownership counseling and raising the current 1.75 percent upfront premium to 3 percent to recoup some of the reduced premium income.