Last week, The new Trump team suspended the pending rate cute to FHA mortgage Insurance (MI) that had just been approved by the Obama administration as one of their last actions in office. So, what does this reversal mean?
According to The US Housing and Urban Development (HUD) the FHA insured over $1.26 million homes in 2016. FHA-backed loans represented just under 20% of loans originated in 2016. An FHA-back loan means that after paying an upfront insurance fee you will pay 0.85% of your loan amount for premiums each year.
What does this mean for consumers?
For those who planned to take advantage of an FHA-backed loan there will be no change to that premium than in 2016. What had been planned was a reduction to .60% approved by the Obama administration that would have taken effect on January 27th. This lower tax rate would have saved participants in that program an average of about $850 per year. However, in one of his first acts President Trump stopped the rate cut, which gained wider attention over the weekend for the reversal or unwinding than the actual impact of the program change.
What was the rationale for the rate cuts & subsequent suspension?
The Obama administration believed the FHA could cut premiums based on capital reserve ratios. Their position that excess reserve requirements merited a roll back to pass on to consumers. Conversely, the new Trump administration opted to halt the cut prior to implementation. Their rationale was based on feedback from the GOP that a rate cut could potentially cost tax payers in the event of another significant downturn in the economy.
Finally, in a statement from HUD, “FHA is committed to ensuring its mortgage insurance premiums remains viable and effective in the long term for all parties involved, especially our tax payers”.