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Administration Proposed Budget for HUD Indicates Premium Increases for FHA

February 20, 2012

February 20, 2012

The proposed fiscal year 2013 budget for the US Department of Housing and Urban Development (HUD) includes information on upcoming premium increases for the Federal Housing Administration (FHA). Due to a provision in the Temporary Payroll Tax bill from late last year, FHA is required to implement a 10 basis point increase to annual premiums for all new FHA loans. In addition, FHA intends to increase premiums on “jumbo” loans (those over $625,500) by 25 basis points (for a total of 35 basis points on those loans). In order to protect the financial stability of the program, FHA also says it may implement additional premium increases. The budget also states that FHA is reducing permitted seller concessions from 6 percent to 3 percent or $6,000, whichever is higher though a proposed rule is expected on this later in the month.

The budget also revealed that for FY12 (the current budget year), FHA’s re-estimates of revenues showed that FHA would actually need (for the first time in its history) a subsidy from the federal government of $688 million. Although they now will not request that money (because they received more than $1 billion from the settlement with the banks over robo-signing), there will be intense pressure from Congress to re-evaluate FHA and its fiscal position. For the last several years FHA has had sufficient reserves to cover claims and losses, but their excess reserves have fallen far below the mandated 2% level. It now appears that for the current year, their losses exceeded their profits, requiring this additional money. In good news, the budget requests does anticipate that the FHA fund will return to full solvency and mandated reserve levels by 2015.

The budget also included premium increases for FHA multifamily loans (221 (d)(4)) by 20 basis points. This won’t apply to loans with Section 8, low-income housing tax credits, or risk-sharing. The budget also cuts contract renewal funding for Section 8 project-based projects. As has been done before, FHA will only partially fund renewals of these contracts, and owners expect there to be significant delays in Housing Assistance Payments (HAPs). These funding cuts will need to be approved by Congress.