Castro defends move to lower federal mortgage fees

Housing and Urban Development Secretary Julián Castro on Thursday defended the Obama administration’s plan to cut fees on some government-backed mortgages.

Castro said the Federal Housing Administration (FHA) has enough money in its reserve fund to lower borrowing costs aimed at helping many first-time homebuyers.

{mosads}Amid an improving financial picture, $40 billion in reserve and continued drops in delinquencies, “now is the time to offer a premium reduction,” he told reporters on Thursday.

The agency will cut the fees by half a percentage point, in a move expected to help more than 2 million FHA homeowners save an average of $900 a year and spur 250,000 people to purchase their first home over the next three years.

Castro emphasized that the half-point reduction still leaves fees at 50 percent above pre-recession levels after climbing 145 percent during the housing crisis when the FHA took a huge financial hit from bad loans and a run on reverse mortgages.

“This action is not a return to the past,” he said.

Castro traveled to Phoenix with President Obama on Thursday to announce the plan, which he is aiming to implement by the end of January.

During his speech, the president said that “we want to make clear the days of making bad bets on the backs of taxpayer money and then getting bailed out afterward, we’re not going back to that.” 

But the decision faced a backlash from some Republicans who said it was careless to risk the FHA’s financial health while increasing the government’s role in the mortgage market.

Sen. Bob Corker (R-Tenn.), a member of the Senate Banking Committee, said the decision is “bad news for taxpayers and is yet another irresponsible, head-scratching decision from the administration in regards to our nation’s housing finance system.”

“The federal government should be winding down its involvement in the mortgage business, not engaging in a race to the bottom, and it is absolutely imperative that Congress follow through on housing finance reform this year.”

Corker and Sen. David Vitter (R-La.) wrote Castro a letter on Thursday asking him to reconsider the decision.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) called the action a “grave mistake” that “will be increasing the likelihood that taxpayers will have to foot the bill for yet another bailout.”

“It was just two years ago that taxpayers had to bail out the FHA to the tune of $1.7 billion, and just two months ago an audit revealed that FHA is still in violation of federal law because it does not maintain sufficient capital reserves,” he said.

Hensarling said his panel is already planning to bring Castro before the panel to ask him about the FHA’s finances.

Castro got plenty of support from the housing industry.

“Lower premiums will make home loans more affordable for qualified borrowers, particularly first-time buyers, and help to alleviate tight credit conditions in the mortgage market,” said Kevin Kelly, chairman of the National Association of Home Builders and a homebuilder and developer from Wilmington, Del.

“This prudent course reflects a recent actuarial report that FHA is back in black and strengthening its financial health. The new premium structure will allow FHA to continue building its reserves,” Kelly said. 

National Community Reinvestment Coalition’s President and CEO John Taylor said while his groups wants to see more action, the reduction is a good start that “will serve to help make homeownership more affordable and attainable for many families. We are pleased that the administration is showing a commitment to homeownership opportunity.”

David Stevens, head of the Mortgage Bankers Association, said the move would help the agency stabilize its market share and continue to rebuild the MMI [Mutual Mortgage Insurance] fund.”