Bankers File Suit to Block Increase in Ginnie Mae Insurance Premiums

The Mortgage Bankers Assn. of America has filed suit against the Government National Mortgage Assn., known as Ginnie Mae, in an effort to block a planned increase in the agency’s mortgage insurance premium.

The trade group, which represents 2,600 companies in the mortgage industry, called Ginnie Mae’s plan to raise its insurance premium on March 1 from 0.06 percentage point to 0.1 percentage point “unlawful and bad public policy.”

“This is nothing more than a tax on home buyers levied for ideological rather than business reasons,” said Thomas M. French Jr., the association’s president. “If the government is going to levy taxes, they should be broad-based and equitable, not concentrated on the backs of low- and moderate-income home buyers.”

The suit filed last week, which U.S. District Judge Stanley S. Harris will hear, contends that the fee increase would violate federal laws prohibiting an increase in the guaranty fee unless Ginnie Mae can demonstrate an “actuarial need for the increase.”

“It appears clear that GNMA’s increased guaranty fee is in excess of the amount necessary to compensate GNMA for the cost, expense and risk of maintaining the mortgage-backed securities program,” French said.

Ken Lore, an attorney with Brownstein, Zeidman and Schomer, who is representing the mortgage bankers, said, “The only basis to increase the fee is that it’s necessary to pay the costs of the program. They (Ginnie Mae) have not attempted to make that justification.”

Ginnie Mae officials declined to comment on the suit.

According to the association, the fee increase could cost mortgage bankers and home buyers an additional $219 million annually. Specifically, it would cost a typical home buyer with a $70,000 mortgage insured by the Federal Housing Administration an additional $187 in closing costs, the group said.

About 95% of all FHA insured and Veterans Administration guaranteed single family home mortgages are financed through the Ginnie Mae mortgage-backed securities program.

Last December, Ginnie Mae announced that it would raise the guaranty fee to make its fees more competitive with those fees charged by private insurers of mortgage-backed securities and to help raise more money from government housing programs.

At the same time, the Administration proposed in its fiscal 1988 budget to raise the FHA’s mortgage insurance premium to 5% from 3.8% of the loan and to increase the Veterans Administration’s insurance fee to 2.5% from 1% of the value of the loan.

Warren Lasko, MBA’s executive vice president, said his group has tried to convince Ginnie Mae executives and lobby members of Congress to forgo the increase. But, not being successful, the association decided to go ahead with the lawsuit, he said.