Brendan McKay (pictured top), chief advocacy officer and co-founder of the Broker Action Coalition (BAC), believes this issue, like the trigger lead ban, appeals to politicians on both sides of the aisle. Democratic Rep. Gregory Meeks and Republican Rep. Pete Sessions introduced the bill.
“It is bipartisan, and it would cause mortgage insurance to fall off during the life of the loan, just like a conventional loan does,” McKay told Mortgage Professional America. Mortgage insurance is essentially foreclosure insurance for low-equity loans. And it’s why we’re able to have low-down-payment loans in this country, and you’re not able to in other countries with conventional loans.”
Aligning FHA with conventional
Right now, if a borrower is forced to add mortgage insurance to a conventional loan because their down payment is less than 20% of the home’s value, it is automatically removed when the LTV drops to 78%.
However, with an FHA loan, the mortgage insurance never drops off the loan. So borrowers who use this program, who are often more financially disadvantaged than conventional loan customers, are forced to make these payments until the loan is satisfied.
“You put 3% down, and you pay your mortgage down, and it appreciates, and you have 25% equity, you can’t get the insurance removed on FHA loans. It’s on for the life of the loan,” McKay said. “You’ve got people paying hundreds of dollars a month in mortgage insurance on a home that has no risk of foreclosure, because they would just sell the house.”
