FHA Profits Going To The Treasury

by Peter G. Miller
May 27th, 2008

Why does HUD want FHA mortgages to now have risk-based mortgage insurance premiums instead of one-premium-rate for all?

The answer: To increase its bottom line.

“Government,” when we lasted looked, was supposed to be “for the people,” a concept which has now been replaced with a new idea at HUD: Making a profit and bulking-up government coffers.

What? You didn’t know that government was a for-profit entity? It didn’t say anything about that in your civics texts or government classes?

According to Luke Mullins at U.S. News & World Report, the FHA now runs a “surplus.”

Who says?

FHA Commissioner Brian Montgomery.

Addressing the National Association of Realtors at their mid-year meeting in Washington, Mullins reports these words from Montgomery:

“We normally, at the end of the day, have a surplus that we then give to the U.S. Treasury. And we want to keep the FHA that way.”

Now we know something important: The reason FHA premiums are so high is that they are being used to reduce the federal deficit. In other words, a back-door tax paid by FHA borrowers. A way to make the massive federal deficit look smaller.

We also know this: The current system — the one in place since the 1930s — actually produces a profit. The new system would raise costs for many borrowers and remove large numbers from the program. As the General Accountability Office has reported:

“GAO’s analysis of data on 2005 FHA home purchase borrowers shows that 43 percent would have paid the same or less under the risk-based pricing proposal than they actually paid, 37 percent would have paid more, and 20 percent (those with the highest expected claim rates) would not have qualified for FHA insurance.”

When last I looked government agencies were non-profit institutions. As well, only Congress has the right to institute taxes. If HUD can’t figure out a better use of the money collected from FHA borrowers — money which is collected for the purpose of funding insurance claims — then perhaps we can help.

For instance, HUD could reduce premiums for FHA mortgages, thus making the program more affordable and opening the FHA plan to more borrowers.

For the full story from Mr. Mullins, see: FHA Chief Criticizes Rescue Plan.

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One Response to “FHA Profits Going To The Treasury”

  1. Casey Moseman Says:

    In support of your quote from FHA Commissioner Brian Montgomery, I found the following statement off of http://www.hud.gov. http://www.hud.gov/local/or/working/fha25year.pdf

    It’s a 26 page report that details the first 25 years of FHA. Specifically quoted from the report:

    “The borrower’s regular mortgage payment would include a mortgage insurance premium which the lender would pay annually to the FHA. In time the accumulation of premiums would make the agency self-supporting and possibly provide dividends to mortgagors.”

    So in short, why is FHA giving the surplus to the US treasury and not back to the borrowers? Interesting that the program was not set up to provide the treasury with any surplus but now they receive it at the end of the day.

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