Deplorable. Despicable. Disappointing.
These are words that some people in the housing industry have used to describe the Trump administration’s recent move to reverse the Federal Housing Administration (FHA) insurance rate cut that was put in place – last minute – by the Obama administration.
Some view the move as being purely politically motivated – just one of the many ways President Trump seeks to erase any of the last vestiges of the former administration. They assert that the rate cut could have had at least some positive impact to help stimulate home buying among first-time and lower-income home buyers.
Still others view the move to suspend the cut as a prudent measure to further protect the health of the FHA’s Mutual Mortgage Insurance Fund (MMIF). They point to the fact that the MMIF was running well below its mandated 2% reserve level for many years – and that in 2013, the FHA required a $1.7 billion “bailout” from the Treasury in order to shore up its reserves.
A.W. Pickel III, Midwest division president at AmCap Mortgage Ltd., says he was not surprised at all that the Trump administration sought to quickly reverse the proposed rate cut.
“It is typical for a new administration to halt last-minute executive actions from the prior administration,” Pickel tells MortgageOrb. “The FHA MMI fund is back above two percent, but there would be a budgetary cost to lowering the MIP. It is not surprising that the new HUD leadership will want to carefully examine the trade-offs here.”
When asked what the chances are that the cut will be restored (or that there will be a cut of some size) in 2017, Pickel says it is “possible but unlikely, in my view. I would not expect a rapid decision on this.”
And when asked how much an FHA rate cut might help stimulate home sales, Pickel says, “Primarily, an MIP drop would result in a shift in market share from the government-sponsored enterprises to the FHA. There could be a small positive in terms of increase in home sales and purchase originations.”
In a statement released earlier this week, Edward Pinto, co-director and chief risk officer for the International Center on Housing Risk, a nonprofit, non-partisan housing research center that is part of the American Enterprise Institute, says the Trump administration’s indefinite suspension of the FHA’s pending premium cut “is good news for both first-time home buyers and taxpayers.”
“Since the premium cut announcement was only a few days old and had not taken effect, the impact of the suspension is minimal,” Pinto says. “The fact is that little of the price cut goes to expand access to new home buyers not already intending to purchase.”
The rate cut would have saved a borrower with a $200,000 mortgage an average of about $500 per year – which, as some pointed out, is only enough to cover one of “life’s unexpected events,” such as a car repair.
Pinto says the rate cut reversal is actually “good news for first-time home buyers” because the premium cut would get “capitalized into higher home prices for all FHA home buyers or [get] spent by buyers on larger, bigger [homes], or homes in different locations.”
“In short, little of the price cut goes to expand access to new home buyers not already intending to purchase,” Pinto says. “With the U.S. now in its 51st month of a seller’s market, it should come as no surprise that home prices have been increasing much more rapidly than incomes or inflation. This is an unsustainable trend.”
Pinto further adds that the cancellation of the rate cut is “good news for taxpayers” because it will “result in additional needed capital accumulation by the FHA.”
“There is general agreement that the current two percent minimum standard is just that, a minimum,” he says.
According to the National Association of Realtors (NAR), without the cut, about 750,000 to 850,000 home buyers will face higher costs, and 30,000 to 40,000 new home buyers will be left on the sidelines in 2017.
“We’re disappointed in the decision but will continue to make the case to reinstate the cut in the months ahead,” NAR President William E. Brown says in a recent article in REALTORMag.