A plan to discount mortgage insurance premiums by the Federal Housing Administration, announced just 11 days ago, has been suspended, in one of the first actions taken by the Trump Administration.
The reversal by the FHA came through less than two hours after Donald Trump was sworn in as president. The plan, which is explained in a news release still posted online as of this writing, would have reduced the annual mortgage insurance premium (MIP) for FHA-backed loans by 25 basis points for most new mortgages. The discount would have taken effect on January 27, 2017.
The cut in the MIP is “suspended indefinitely,” according to a statement in a letter signed by Deputy Assistant Secretary for Housing Genger Charles. Reuters reports that when a U.S. Housing and Urban Development (HUD) spokesman was asked for more information about the decision, the spokesman referred to the letter, which states that “more analysis and research are deemed necessary to assess future adjustments…”
The FHA’s mortgage insurance discount, under the Obama Administration, was intended as a move help more Americans get access to mortgages and expand homeownership overall, according to the Jan. 9 press release.
“FHA’s new premium rates are projected to save new FHA-insured homeowners an average of $500 this year,” the agency said in the Jan. 9 statement.
Ben Carson, Trump’s nominee to head HUD, told Congress last week during his nomination hearing that the new administration would review the decision.
The FHA projects that approximately 1 million people will take out an FHA mortgage in 2017.
The FHA doesn’t make homes loans but provides a safety net for lenders through mortgage insurance, which adds to the monthly mortgage expense for a pre-designated period of time. Mortgage insurance usually is required by lenders if the home loan is more than 80 percent of a property’s value, commonly known as LTV, or loan-to-value ratio. The annual premium fees paid by borrowers fund the FHA’s Mutual Mortgage Insurance Fund, which helps the agency protect against losses incurred if borrowers run into trouble.
Congress requires that FHA have enough reserves to cover projected losses over 30 years. In a statement, FHA said that the reserve ratio stood at 2.32 percent last year, the second consecutive year to exceed the required 2 percent threshold.
“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” Obama’s HUD Secretary Julian Castro wrote in the Jan. 9 press release. “This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.”
Many analysts point to other factors, in addition to mortgage insurance premium, for restricting many first-time homebuyers or other borrowers from owning a home. Rising interest rates, poor credit, increasing home prices and difficulty in raising enough money for a down payment are other key factors holding back a fuller housing market recovery.