One of the first actions taken by the new Donald Trump administration on 20 January 2017 was to suspend a pending rate cut initiated by the Obama administration that would have effectively lowered monthly payments on FHA-backed home mortgage loans beginning the following week.
The rate cut, introduced by the U.S. Department of Housing and Urban Development on 9 January, would have reduced the annual FHA insurance premium on new mortgages for lower- and middle-income and first-time home buyers from the current 0.85 percent to 0.6 percent (a quarter-percentage point). The cut would have shaved $1,250 annually off the payments on a $500,000 mortgage.
The Federal Housing Administration doesn’t issue mortgages, but facilitates lending by selling insurance to protect against defaults. According to a report by Bloomberg, Republicans have argued against insurance rate cuts in the past because they put taxpayers at risk by decreasing the funds available to FHA for responding to mortgage defaults. The Obama administration, which had actually raised mortgage insurance rates four times since 2010, didn’t consult with incoming Trump officials before announcing the last-minute reduction.
Senate Democratic leader Chuck Schumer criticized the Trump administration’s move, while conservative financial regulation expert Mark Calabria defended it (via Bloomberg):
“It took only an hour after his positive words on the inaugural platform for his actions to ring hollow,” Schumer said. “One hour after talking about helping working people and ending the cabal in Washington that hurts people, he signs a regulation that makes it more expensive for new homeowners to buy mortgages.”
Mark Calabria, director of financial regulation studies for the libertarian Cato Institute, said it was appropriate for the administration to examine last-minute decisions by its predecessor, “especially when those decisions appear to be purely motivated by politics.”
Realtor groups nationwide, including the California Association of Realtors, issued statements urging the Trump administration to reinstate the rate cut:
“We hope HUD and the Trump administration will make it a priority to quickly review the reduction in the FHA mortgage insurance premium,” said C.A.R. President Geoff McIntosh. “Homebuyers in California, who would have saved an average of $860 a year, will be negatively impacted more than any other state by the decision to not reduce the FHA premium.
“FHA’s single-family home portfolio is financially sound as it has ever been, and we hope that once the new Administration has thoroughly reviewed the merits of the premium reduction the suspension will immediately be lifted,” said McIntosh.
National Association of Realtors President William Brown estimated that the cut would have lowered payments for between 750,000 and 850,000 new home buyers, and made it possible for 30,000 to 40,000 applicants to get home loans who otherwise wouldn’t have qualified.
HUD officials said the rate cut would remain suspended indefinitely pending “more analysis and research”:
FHA is committed to ensuring its mortgage insurance programs remains viable and effective in the long term for all parties involved, especially our taxpayers. As such, more analysis and research are deemed necessary to assess future adjustments while also considering potential market conditions in an ever-changing global economy that could impact our efforts.
Light, Joe. “Trump Reverses Obama’s Mortgage Fee Cuts on First Day.”
Bloomberg. 20 January 2017.
Pender, Kathleen. “Trump’s Swift Mortgage Move Angers Real Estate Industry.
San Francisco Chronicle. 24 January 2017.
Swanson, Brena. “Industry Reacts: Is Trump’s Suspension of FHA Mortgage Insurance Premium Cut Good or Bad?”
HousingWire. 20 January 2017.
California Association of Realtors. “C.A.R. Calls on HUD to Reinstate FHA Insurance Cut.”
20 January 2017.