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FHA Fund Doesn't Need Treasury Draw After All; Groups Call For Fee Reduction

by devteam March 5th, 2014 | Share

The Federal Housing Administration (FHA)rnMutual Mortgage Insurance Fund will have a positive capital reserve balance atrnthe end of Fiscal 2014 estimated at $7.8 billion and will not require a draw</bfrom the U.S. Treasury.  This news wasrncontained in an overview of the FY2015 budget for the Department of Housing andrnUrban Development (HUD) released today by HUD Secretary Shaun Donovan.  The announced improvement of the fund immediatelyrntriggered a call from a lending industry group for FHA to reduce the premiumsrnit currently charges homebuyers.</p

FHA will introduce several features inrnthe upcoming fiscal year designed to strengthen its insurance fund and providernincreased access to credit.  First, it isrnasking for authority to collect an administrative fee.  This will help it further develop its qualityrnassurance efforts with a greater capacity to monitor loans and transform itsrnbusiness processes.  HUD will alsornconduct a pilot housing counseling program for first-time homebuyers calledrnHomeowners Armed with Knowledge or HAWK and will increase its overallrncounseling budget by 33 percent or $60 million.</p

HUD said that it and its partners havern”steered the housing market through one of the worst recessions in recentrnhistory while continuing to serve the most vulnerable.”  In the last five years it has reduced veteranrnhomelessness by 24 percent and chronic homelessness by 16 percent, helpedrnnearly 4 million families buy a home and 450,000 families to avoid losing theirsrnthrough foreclosure.  This progress thernbudget overview says, was set back by Sequestration in 2013 and 74,000 familiesrnwho should gotten Housing Choice Vouchers remain on waiting lists while somernfamilies lost vouchers they had already received.  Block grants to every community were cut andrncapital improvements to public housing units were reduced and jobs lost as arnresult.  The Sequestration cuts also meanrnthat HUD will not achieve its goal of ending chronic homelessness by 2015. </p

The cuts, HUD said, had real impact, butrnthe FY2014 and 2015 budgets have begun to turn the page.  Over the current budget and the proposed onernHUD is reversing most of the harmful sequestration cuts and will be able tornstabilize programs and grow investments. rnStill the overview stresses it is a very tough budget environment.</p

Overall, HUD’s 2015 President’s Budget increasesrngross Budget Authority by 2.6% over FY2014 levels, and by 10.1% over FY2013 levels,rnto $46.66 billion.</p

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The Department says the majority of itsrnbudget each year is required to simply hold its ground – keeping currentrnsupport recipients in their homes and providing basic upkeep to the publicrnhousing stock.  Eighty-four percent ofrnthe 2015 budget request will be used to: </p<ul class="unIndentedList"<liRenewrnexisting rental assistance and operating subsidies, </li<liFundrnaccrued capital needs of public housing,</li<liRenewrnexisting homeless assistance grants</li</ul

As inflation increases so does the needrnto increase funding for existing families and for every 1 percent increase inrnrenewals other programs must be reduced by 5 percent to keep the budget level.</p

HUD’s 2015 budget request makes keyrninvestments in rental programs including;</p<ul class="unIndentedList"<liAnrnincrease in Tenant Based Rental Assistance to above $20 billion. This will allow the Department to serve 2.2rnmillion low income families and reverse sequestration;</li<liIncreasesrnfunding for Homeless Assistance Grants by $301 million which will allow thernstrategic plan to end homelessness to get back on track.</li<li$75rnmillion for 10,000 new vouchers for supportive housing for veterans, </li<liFundsrnPublic Housing Capital at $1.925 billion and the Operating Fund at $4.6rnbillion.</li<liProposesrn$440 million for elderly housing and %160 million for persons with disabilities.</li</ul

In addition to a base budget request ofrn$120 million for the Choice Neighborhoods program the President is proposing anrnadditional $280 million through an initiative to fund comprehensive neighborhoodrnrevitalization in seven to ten additional high-poverty neighborhoods.  The President’s initiative also provides $75rnmillion to help communities provide jobs and an additional $125 million tornexpand HUD’s Jobs-Plus program to assist a total of 50,000 public housingrnresidents to secure employment.</p

“This year’s budget presents a uniquernopportunity for HUD to work within the frame of the Bipartisan Budget agreementrnwhile continuing to build ladders of opportunity for all Americans” saidrnDonovan. “This funding will continue to help strengthen and stabilize ourrnnation’s housing market while putting our economy back on the right track andrnhelping those in most need.”</p

Asrnthe HUD budget was unveiled the Community Home Lenders Association (CHLA)rncalled again for FHA to reduce its annual loan fee.  CHLA had originally made the request in arnletter to the Office of Management and Budget on February 18.  It asked that the annual premium be reducedrnfrom the current 1.35 percent to 0.75 percent and to 0.5 percent for homebuyersrnwho complete prepurchase counseling.  CHLA also called for a subsequent reduction in the annualrnpremium when the FHA MMIF fund reaches a 2% net worth level.</p

In a pressrnrelease today CHLA Executive Director Scott Olson said, “Today’s budget shows that our recent call forrna meaningful reduction in FHA’s annual premium can be done consistent withrna steady buildup of the FHA fund. The numbers show annual premiums can be cut from 135 to 75 basis pointsrnwhile still increasing FHA’s net worth by around $10 billion in the nextrnyear.”</p

“We commend what the FHA has done in rebuilding the FHA fund and makingrnimportant program changes to improve loan performance,” Olson said.rn”We think it is now time tornbalance the emphasis on FHA finances with steps to make FHA loans morernaffordable and we believe our proposal would help to accomplish that.”

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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