The ink wasn’t even dry yet on his official inauguration, and President Donald Trump already found a way to impact the real estate industry – although not as we would have predicted. In one of the very first moves by his new administration, POTUS Trump signed an administrative order to suspend the FHA’s planned Mortgage Insurance Premium reduction.
We wrote last week about the announcement that FHA’s MIP would be reduced by .25 basis points for most borrowers by outgoing U.S. Department of Housing and Urban Development Secretary Julian Castro. The move would bring the MIP for most borrowers to 0.60 percent from 0.85 percent, and go into effect for all loans funded on or after January 27, 2017.
But Trump rescinded that reduction with one felled swoop, undoing one of the final acts of the Obama administration.
The news came with some disappointment among real estate professionals.
“According to our estimates, roughly 750,000 to 850,000 home buyers will face higher costs, and 30,000 to 40,000 new home buyers will be left on the sidelines in 2017 without the cut,” said William E. Brown, National Association of Realtors president. “We’re disappointed in the decision but will continue making the case to reinstate the cut in the months ahead.”
However, other housing experts point to the fact that the reduction would have resulted in marginal savings only for borrowers, with an estimated $500 reduction in costs per year for those in FHA loans.
So why did Trump and his administration suspend the premium reduction? House Republicans cited the fact that a drop in premiums would reduce the safety net of funds the FHA keeps to insure their mortgages. In a statement issued early last week, House Financial Services Chairman Jeb Hensarling (R-Tex.) said, “the Obama administration’s parting gift to hardworking taxpayers is to put them at greater risk for footing the bill for another bailout.”
But HUD Secretary Julian Castro said that’s not the case, since the FHA’s reserves were plentiful enough to withstand less revenue, and this premium drop brings the rate back to normal levels seen before they were raised to weather the foreclosure crisis.
According to Laurie Goodman, co-director of the Housing Finance Policy Center at the Urban Institute, “They didn’t have the time to study it so they rolled it back. It wasn’t a huge impact anyway. It was a marginal change.”
The FHA is still an attractive loan insurer for many homebuyers, allowing for loans with only 3.5% down, lower credit score requirements, and down payment and closing cost flexibility.
The suspension of the planned FHA premium drop came in the form of a HUD statement shortly after President Trump was sworn in.
HUD spokesman Brian Sullivan said via email that the agency would have no further comment other than that letter.
Contact us if you’d like more information about FHA loans and the best way to save money on your mortgage!