Trump already suspends Obama-era FHA mortgage insurance cut

Andrea Riquier  |   January 21, 2017

The Federal Housing Administration will roll back a cut in mortgage insurance premiums announced just days earlier under outgoing Housing and Urban Development head Julian Castro, the government said Friday. The reduction in insurance premiums “has been suspended indefinitely,” according to a release. “FHA will issue a subsequent Mortgagee Letter at a later date should this policy change.” The reduction of 25 basis points, or a quarter percentage point, was meant to help more borrowers gain access to the mortgage market. It came after a surge in mortgage rates. Castro said FHA’s reserves, which premiums help bolster, were healthy enough to withstand lower revenues. In 2013, FHA required a bailout of $1.7 billion when its reserves fell short. Congressional Republicans had largely opposed the cut. House Financial Services Chair Jeb Hensarling of Texas issued a statement saying, “the Obama administration’s parting gift to hardworking taxpayers is to put them at greater risk for footing the bill for another bailout.” And Alabama Senator Richard Shelby announced his opposition to the cut during the confirmation hearing of Dr. Ben Carson, the nominee as next head of HUD. Carson agreed that the cut was worth examining. Many housing analysts had expected the cut to be challenged. “A delay in the [mortgage insurance premium] cut is probable at this point, but we caution that a delay does not necessarily signal a reversal,” wrote Compass Point analysts on Thursday. “If a delay does materialize, we would likely increase our published odds of a full reversal from 40% to 70%.” While some progressive groups hailed the cut as a means of helping more borrowers access mortgage credit, it wasn’t universally seen as a big game-changer. For one thing, it was too small to mean big savings for borrowers: FHA estimated it at an average of $500 per year. And some analysts thought its impact on drawing more borrowers in would be limited. Laurie Goodman, co-director of the Urban Institute’s Housing Finance Policy Center, told MarketWatch that there were other steps FHA could take to entice more lenders to make mortgages, such as limiting its legal actions under the False Claims Act. Many big banks have quit lending through FHA after being slapped with heavy fines for what they perceive as minor infractions of its rules. One large lender, Quicken Loans, sued the government after being threatened with lawsuits for infractions.

Source: MarketWatch.com