The National Association of Mortgage Brokers (NAMB) is urging the Federal Housing Administration (FHA) to end its “life of loan” mortgage insurance rule and let borrowers cancel premiums once they’ve paid down their loan to 78% of their home’s value. NAMB believes the policy is outdated and unfair.
Current rules mean that many FHA borrowers must pay mortgage insurance premiums (MIP) for as long as they have their loan. And even if the borrower has paid off most of the principal and interest, the premiums don’t stop.
According to a statement from NAMB, the association is asking the FHA to go back to the old rule, which allowed borrowers to stop paying MIP once their loan-to-value (LTV) ratio reaches 78%.
NAMB said the policy, introduced in 2013 in the aftermath of the housing crisis, is no longer justified given the FHA’s current financial strength. The trade group said that the FHA’s most recent Mutual Mortgage Insurance Fund report shows the agency is in a strong capital position.
The U.S. Department of Housing and Urban Development reported that the MMI Fund’s capital ratio at the end of September was 11.47%, unchanged from the same point a year earlier, and more than five times higher than the 2% statutory requirement.
Borrowers who have paid MIP until reaching 78% LTV have effectively supported the FHA well beyond actuarial risk levels, the group said. NAMB argues that these borrowers should be eligible for premium relief now that the agency’s financial health has been restored.
NAMB President Kimber White told HousingWire that doing away with the rule would help overall housing affordability. Right now, the current rule makes borrowers reluctant to refinance into a new FHA loan, since they’d have to keep paying MIP indefinitely.
“The average life of a borrower keeping a loan is seven years, is what they’re saying. But these buyers under FHA, I find, probably aren’t buyers that are really moving up. A lot of them keep their homes longer, and [they’re] paying a mortgage insurance premium on their house. The risk of FHA is not fair,” White said.
Right now, White said, the rule is especially harsh for first-time homebuyers.
“Most people who are using FHA are first-time homebuyers. … Most people using FHA are in that 100% or under AMI (area median income). So we’re saying we want to help these people, and we want to help the affordability crisis and the affordability issues … but we’re sitting over at FHA penalizing that first-time buyer who can never get rid of their MIP unless they refinance their loan.”
The life of loan policy has produced “unintended market consequences,” the group said in its statement. Borrowers seeking to refinance to take advantage of home equity gains or lower interest rates often leave the FHA program entirely to avoid ongoing mortgage insurance costs, shifting instead to conventional loans.
“This migration is placing additional strain on Fannie Mae and Freddie Mac, who are absorbing loans that would naturally remain within the FHA system absent this policy barrier. Restoring traditional MIP cancellation at 78% LTV would strengthen FHA’s loan portfolio and reduce unnecessary pressure on the government-sponsored enterprises.”
NAMB said allowing qualified borrowers to cancel mortgage insurance at the traditional threshold would lower monthly payments, improve affordability and support housing market stability while preserving the FHA’s capital position.
The group urged the FHA to adopt the change, calling it a commonsense reform that aligns with current market conditions and borrower needs.
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