For a lame-duck, President Barack Obama was very active in his last years, and that didn’t change in these final weeks of his term. One of the things he did was institute a last-minute reduction of the annual fee for Federal Housing Administration borrowers. On Friday, the Trump administration reversed that, effectively costing homeowners about $250 per $100,000 they borrow.
The FHA, which doesn’t make loans but rather helps home-buyers with bad credit scores, cut their premiums by 0.5 percent in January of 2015. On January 9 of this year, the Obama announced that they would drop the rate from 0.85 percent to .060 percent. This move, however, was not discussed with the Trump team.
From The Intercept:
These insurance fees are effectively a tax on middle-class homeownership. By reversing the cut, which was scheduled to go into effect on January 27, one week from today, Trump will be taking more money from FHA homebuyers to keep in government coffers.
Critics argued that lowering FHA premiums would threaten the solvency of the [Mutual Mortgage Insurance Fund], which did require a $1.7 billion bailout in 2013, the first in the agency’s history, owing to a surge of defaults after the housing bubble collapsed. However, the finances of the MMIF have significantly improved since then, amid modest recovery in the housing market. By law, the fund must be maintained at least at 2 percent of the total FHA loan portfolio. The FHA puts the current figure at 2.32 percent.
Senate Minority Leader Chuck Schumer blasted the Trump administration on the floor of the Senate. “One hour after talking about helping working people and ending the cabal in Washington that hurts people, he signs a regulation that makes it more expensive for new homeowners to buy mortgages,” he said.
However proponents of the reversal say that cuts run the risk of leaving the agency unable to deal with defaults.
Shares of private mortgage insurance companies, including MGIC Investment Corp. and Radian Group Inc., erased earlier losses, trading up about one percent as of mid-afternoon. They closed little changed from the day before. Private insurers, which back loans guaranteed by mortgage-finance companies Fannie Mae and Freddie Mac, compete with the FHA for market share and have been critics of fee cuts in the past.
A letter Friday from HUD to lenders and others in the real-estate industry said, “more analysis and research are deemed necessary to assess future adjustments while also considering potential market conditions in an ever-changing global economy that could impact our efforts.”
Thus we are perhaps faced with what could be the great contradiction of the Trump administration. The president talks to the American people like a populist, but his party and their allies govern with an eye towards big business.
What do you think? Share your thoughts in the comments below.