CNBC has the latest update of the continuing deterioration of the FHA on today’s website, “Obama Lowers Mortgage Fees for 3 Million Homeowners”

 

“The latest plan, which does not need congressional approval, reduces the costs on up-front FHA mortgage insurance premiums to 0.01 percent from 1 percent of a borrower’s loan balance for refinancing under the “streamline” program. It also cuts the annual fee for these loans half to 0.55 percent.

 

It applies to loans taken out before June 1, 2009.”  http://www.cnbc.com/id/46642204  

 

 

This Administration has presided over the decline in capital reserves at the FHA, now .25% well below the Congressionally mandated 2% level, and increasing FHA loan defaults, now nearly 10% of portfolio.  This places the FHA in fiscal peril, unable to meet its obligations in the event of continuing loan defaults at a time when defaults and foreclosures are again increasing. 

 

The Administration as you recall recently raised guarantee fees to “finance” the Social Security tax cut, not enhance the FHA’s reserves.  Not a fiscally prudent move.   Now they contemplate significantly reducing the loan guarantee fees to pre 2009 borrowers who refinance which will further compromise the FHA’s financial position and further increasing the FHA’s already high leverage ratio (well above pre financial crisis levels of Fannie and Freddie).   And what will impact be upon the recently announced pledge to use guarantee fee income for Social Security payroll tax cuts?

 

This is all occurring  in the face of remarks from Housing Secretary Donovan before Congress http://www.housingwire.com/article/risks-remain-fha-insurance-fund-donovan-says , that risks still remain for the FHA even in the face of recently raised guarantee premiums and Obama s State Of Union address pledge to end the policies that created the financial crisis in the first place.   http://abcnews.go.com/Politics/OTUS/state-union-obama-makes-case-economic-fairness-term/story?id=15432673&page=3#.T0KBqHnrXJY 

 

Is it any wonder why the housing and housing finance industries are declining in the face of continual barrage of conflicting Washington DC policy changes which have created massive market uncertainty?