Trump’s Good First Move – FHA Insurance Rate
Introduction by John Anthony, click Sustainable Freedom Labs:
FHA loans, require as little as 3.5% down, plus a 1.75% upfront insurance premium payment to help FHA cover any losses. Then the borrower pays .85% of their mortgage monthly into an insurance fund to keep it solvent. In a last ditch move, former President Obama floated a .25% reduction in the amount of this fund payback to lower borrowers’ costs further. But, the FHA insurance fund is now only 16% over the bare minimum to keep it solvent. This reduction could have underfunded the account, forcing taxpayers to subsidize another bankrupt program. Rather than risk the loss to taxpayers, Trump froze the plan until Carson is seated and can review it in full. Why former President Obama would make such a financially irresponsible move is uncertain. But many in the media have seized President Trump’s move to save the system as an attack on homebuyers who have “lost $500 in annual savings.” Trump’s move is responsible, reasonable and no one has lost anything.
That was fast. Less than an hour after President Trump’s swearing in, his Department of Housing and Urban Development suspended the Obama Administration’s last-minute gift to the housing lobby to cut mortgage insurance rates.
Former Secretary Julian Castro announced last week that HUD would lower by 0.25% what the Federal Housing Administration charges on a risky mortgage backed by taxpayers. On loans exceeding $625,000, the premium cut would have been 0.45%. The reductions were scheduled to take effect next Friday.
Mr. Castro promoted the reductions as a way to lower costs for homeowners as he went out the door, but the move was a classic example of the clout of the housing lobby. Realtors, home builders and “fair-housing” advocates have been lobbying for the cut as interest rates begin to rise. They hoped the lower cost of this government subsidy would help them originate more mortgages. Mr. Castro, who has future political ambitions, also didn’t mind doing a favor for potential campaign donors.
The suspension of the premium cut is good government and good for taxpayers. HUD said the suspension is indefinite, which will give the new Trump team time to inspect the FHA’s books and make its own decision. Mr. Trump’s nominee as HUD Secretary, Ben Carson, isn’t even on the job and might not be for a while if Democrats continue to stonewall confirmation votes.
FHA has become a giant guarantor of mortgages with too little scrutiny. Homeowners can score FHA mortgage insurance with a credit rating as low as 580 and a mere 3.5% down payment. When home prices are rising, too few people pay attention when politicians put taxpayers more at risk. But we learned from hard experience in the previous decade that these policies can come back to haunt.
Washington’s housing-industrial complex may squawk, but the new Administration has sent the right message in reversing a bad Obama decision.