Can someone please explain why FHA mortgage insurance isn't dropping?

Insurance rates of all kinds follow what up to this point has been an immutable equation. Rise when risk goes up, fall when risk goes down. Somehow, the Department of Housing and Urban Development (HUD) didn’t get the memo on this and in the process, is punishing the country’s most vulnerable homebuyers and borrowers.

In November of 2019, in HUD’s annual report to Congress on the health of the FHA mortgage insurance program, it was revealed that that the FHA MMI Fund Capital Ratio skyrocketed from 2.78% to 4.84%, a staggering 63% increase from the previous year, resulting in an additional $28 billion added to the insurance fund. With the fund sitting at 4.84, the fund is 142% above the minimum capital requirement mandated by law. It is strange to see the government involved in anything that comes in under budget and ahead of projections.

Couple this good news with the great news that everyone is working with wages rising, values are still creeping up nationally, interest rates are near their historic lows, and FHA mortgage delinquencies have never been lower, and there should be a celebration by all industry stakeholders and buyers of a substantial lowering of the monthly mortgage insurance premium paid by all FHA borrowers. But all we hear is dead silence on the subject coming out of Washington, DC. If it’s not getting lowered now, when will it ever be reduced?

A cursory review of the report gives no real clues as to why there has been no reduction. Most of the commentary in the report is typical protectmus recetemus and bureaucracy-speak such as “We must, however, be prudent in our approach to future actions so that they will yield positive results for the American taxpayer not just for today, but for years to come”.   This is a half-truth, since while all American’s are taxpayers, not all are paying FHA mortgage insurance premiums.  FHA borrowers are the exclusive contributor of the money into the MMI fund. Moreover, FHA has never needed a taxpayer bailout unlike Fannie Mae, Freddie Mac, the Savings and Loans and of course the banks. This money is paid monthly and is theirs, and should be refunded to them in the form of a halving of the mortgage insurance premium. To reduce it in the future would be to give future FHA borrowers a break at the expense of the ones who are paying it now and responsible for the fund being so flush.

There was recent attempt to lower the mortgage insurance premiums. In his last act as President, Barack Obama tried cutting the monthly mortgage insurance premium 50 basis points from 1.35 to .80, a drop that would have resulted in an annual savings to the average FHA borrower of $1,200. But the savings never materialized because the first act by Trump as President was to squash the reduction with his first executive order.

There is no legitimate reason at this point to not lower the premiums. The best mouthpiece to do this would be to have the National Association of Realtors (NAR) in conjunction with the Mortgage Bankers Association (MBA) lobby HUD and the President for a long overdue discount. A halving of the premium would result in a substantial increase in the number of borrowers qualifying for larger loan amounts, would increase the number of FHA loans that are funded, which in turn would add more premiums to the fund, and would most certainly cause sales and values to rise. And if it turns out the MMI Fund starts to fall, you can always increase the premium back up.