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HUD Secretary Fudge confirms interest in eliminating Mortgage Interest Premiums
On January 11, the Secretary for Housing and Urban Development, Marcia Fudge, testified at the House Financial Services Committee hearing on the Oversight of HUD and the FHA. Topics included qualification for housing programs by veterans, HUD efforts to support more affordable housing, and oversight of public housing authorities, among other things.
Secretary Fudge addressed the possibility of eliminating the Mortgage Insurance Premiums (MIP) from Federal Housing Administration (FHA) mortgages. Specifically, Rep. Brad Sherman (D-CA) asked Secretary Fudge whether she would be willing to eliminate MIPs, to which Secretary Fudge replied “Yes, I’m willing to look at it.” Rep. Gregory Meeks (D-NY) asked whether FHA insurance could follow the same model as private mortgage insurance, where the product is terminated after a certain amount of payment on the principal of the loan. In response, the Secretary replied positively with “I would love to see it happen.”
FHA reduces mortgage insurance premiums to improve home affordability
On February 22, FHA announced a 30 basis point reduction in the annual premium charged to mortgage borrowers, resulting in mortgage insurance premiums of 0.55 percent for most borrowers seeking FHA-insured mortgages (down from 0.85 percent). (See also Mortgagee Letter 2023-05.) The reduction will apply to nearly all FHA-insured Single Family Title II forward mortgages, and is applicable to all eligible property types including single family homes, condominiums, and manufactured homes, all eligible loan-to-value ratios, and all eligible base loan amounts. According to the announcement, the reduction is intended to build on steps taken by the Biden administration to make homeownership more affordable and accessible, particularly for households of color, and could save an estimated 850,000 borrowers an average of $800 annually. As previously covered by InfoBytes, last September HUD modified FHA’s underwriting policies to allow lenders to consider a first-time homebuyer’s positive rental payment history as an additional factor in determining eligibility for an FHA-insured mortgage, and in March, the Property Appraisal and Valuation Equity Task Force outlined steps for addressing alleged racial bias in home appraisals (covered by InfoBytes here). Additional actions taken by HUD to improve homeownership accessibility can be found here.
IRS issues reporting guidance for MIP
On February 22, the IRS issued a notice providing guidance to mortgage lenders on the reporting of mortgage insurance premiums (MIP) treated as qualified residence interest. The IRS emphasizes that MIP paid or accrued through December 31, 2017 will be deductible for eligible taxpayers and informs lenders to report MIP received in 2017 on Form 1098. If a lender has already filed Form 1098 and did not include the reportable MIP, the IRS requires lenders to file corrected forms by the filing due date and to furnish corrected statements to borrowers by March 15.