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The Trump Administration Suspending FHA Mortgage Insurance Rates

The Trump administration announced that they were suspending a rate cut to FHA mortgage insurance. FHA insurance insured over one million purchase loans and refinances in 2016.

  • FHA mortgage insurance was primarily aimed at helping first-time homebuyers, as well as minority and low-income home-buyers.
  • According to the National Association of Realtors, without the Obama administration’s rate cuts, up to 40,000 homebuyers could be shut out of the market and up to 800,000 people could see their mortgage rates go up.
  • NAR estimated that the rate cuts would have reduced the cost of mortgage insurance by an average of $576 per year.

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Background

Executive Action Taken

Trump “Suspended A Pending Rate Cut To FHA Mortgage Insurance.” According to the Los Angeles Times, “On Friday, the Trump administration suspended a pending rate cut to FHA mortgage insurance that the outgoing Obama administration announced just a week earlier. […]The rate cut was supposed to take effect Jan. 27.” [Los Angeles Times, 1/23/17]

Why Suspending The Rate Cut Was Bad

In 2016, The FHA “Insured 1.36 Million Purchase Loans And Refinances For Single-Family Homes.” According to the Los Angeles Times, “During the federal government’s 2016 fiscal year, the FHA insured 1.26 million purchase loans and refinances for single-family homes. Nearly 880,000 of those were purchases, worth more than $171 billion. In the second quarter of 2016, FHA-backed loans accounted for 16.6% of single-family home loans, according to HUD.” [Los Angeles Times, 1/23/17]

CBS News: The Rate Cut Was Meant To Offset Rising Mortgage Interest Rates, Which Are Likely To Keep Rising And “Could Make It Harder For Borrowers To Get Mortgage Financing.” According to CBS News, “Part of the rationale behind the planned FHA decrease was to offset rising interests rates on mortgages, which have been steadily increasing since the election and are expected to keep rising as the economy improves. That could make it harder for borrowers to get mortgage financing.” [CBS News, 1/23/17]

This Order Hurts Americans

FHA-Backed Mortgages Were “Aimed At First-Time Homebuyers And Those With Poor To Fair Credit”

FHA-Backed Mortgages Were “Aimed At First-Time Homebuyers And Those With Poor To Fair Credit.” According to the Los Angeles Times, “The Federal Housing Administration is a government agency that insures home loans and collects fees from borrowers to reimburse lenders in the case of default. It is part of the Department of Housing and Urban Development, and the loans FHA insures are aimed at first-time homebuyers and those with poor to fair credit. Borrowers can qualify for an FHA-backed mortgage with down payments as small as 3.5%, even with a credit score as low as 580, which could signal a past bankruptcy or debts sent to collection.” [Los Angeles Times, 1/23/17]

Urban Institute’s Laurie Goodman: “The FHA Does A Disproportionate Amount Of Loans For First-Time Buyers, Minority Buyers, Low-Income Buying.” According to CBS News, “Other lenders use ‘risk-based pricing,’ meaning that borrowers considered more risky pay more, according to Laurie Goodman, co-director of the Housing Finance Policy Center at the Urban Institute. Because of this, a so-called risky borrower would pay less if they went with an FHA mortgage over a private lender. ‘The FHA does a disproportionate amount of loans for first-time buyers, minority buyers, low-income buying; it’s hugely important,’ Goodman said.” [CBS News, 1/23/17]

The National Association Of Realtors Estimated That 30,000 To 40,000 People Could Be Shut Out Of The Home buying Market Without The Rate Cut

The National Association Of Realtors Estimated That 30,000 To 40,000 People Could Be Shut Out Of The Home Buying Market Without The Rate Cut. According to CBS News, “The NAR estimated that some 30,000 to 40,000 people who would have been able to afford a home purchase with the anticipated lower fee will now be shut out of homeownership.” [CBS News, 1/23/17]

  • The NAR Estimated That 700,000 To 800,000 People Could Be Forced To Pay More For Mortgage Insurance. According to CBS News, “The NAR estimated that some 30,000 to 40,000 people who would have been able to afford a home purchase with the anticipated lower fee will now be shut out of homeownership, while 700,000 to 800,000 will pay more for mortgage insurances than they otherwise would have.” [CBS News, 1/23/17]

Mortgage Bankers Association CEO David Stephens: Lenders Have To “Go Back To The Borrower And Tell Them Their Rate Is Going To Be Higher Than They Expected.” According to CBS News, “While the change was set to go into effect on Jan. 27, because mortgages often take a long time to process, many lenders had already alerted their customers about lower rates, said David Stevens, president and CEO of the Mortgage Bankers Association. ‘Some lenders already told borrowers that their rate was going to go down. Now they have to re-disclose, go back to the borrower and tell them their rate is going to be higher than they expected,’ he said.” [CBS News, 1/23/17]

FHA Mortgage Rate Cuts Saved Homebuyers Money And Corresponded With An Increase In Home Buying

National Association Of Realtors: The Rate Cut Would Have Reduced Mortgage Insurance Payments By $576 A Year For A Family Buying A Median-Value Home. According to CBS News, “About 700,000 to 800,000 Americans are affected by the president’s action, according to the National Association of Realtors. […]For a family buying the median home — which cost $234,900 as of November — the cut would have reduced their mortgage insurance payments by $576 a year, according to the NAR.” [CBS News, 1/23/17]

California Association Of Realtors: If The Rate Cut Had Been Allowed To Go Into Effect It Would Have Saved Californians Using FHA Loans An Average Of $860 Per Year. According to the Los Angeles Times, “If the recent cut had gone into effect as expected Jan. 27, the California Assn. of Realtors estimates borrowers in the state using FHA loans would have saved an average of $860 a year.” [Los Angeles Times, 1/23/17]

In January 2015, The Obama Administration Cut The FHA Insurance Rate To Its Current Level And “Home Purchases Saw A Corresponding Bump.” According to CBS News, “Historically, the interest rate for FHA insurance has hovered around 0.625 percent. Again, that rate is in addition to whatever mortgage rate a borrower can secure. During the housing collapse, the price of insurance rose dramatically as people defaulted on their mortgages in high numbers. After the Obama administration cut the FHA insurance rate to its current level, in January 2015, home purchases saw a corresponding bump.” [CBS News, 1/23/17]