In a blog post yesterday, staff of the New York Fed began a series on the proper structure of the FHA insurance premium. Starting with the fully-financed upfront premium (unsurprisingly found to favor mortgage defaulters), the paper proposes that FHA charge only annual cash premiums to better target defaulters without harming mortgage affordability. The next FRB-NY blog will look favorably on risk-based annual premiums. Absent from the discussion is the likely negative impact on the federal budget of eliminating the upfront premium as well as any policy discussion of cross-subsidization of high risk borrowers by low risk ones.
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