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FHA Insurance Rate Cut Suspended

FHA insurance rate cut was suspended by HUD. The insurance rate cut was announced by the Obama administration on January 9 and scheduled to go in effect on January 27. The rate cut was justified by relative health of the fund with capital reserve reaching 2.35% compared to 2% required by law. The new Trump administration suspended the proposed cut within hours of inauguration.

The FHA mortgage insurance rate was supposed to drop from 0.85% to 0.6%. The program is popular with first time and low income home buyers, who can not afford 20% down payment, and would reduce the annual premium by $500 for mortgage of $200,000.

 

The FHA sells insurance to protect against defaults and doesn’t issue mortgages. It is a popular program among first-time home buyers because it allows borrowers to make a down payment of as low as 3.5 percent with a credit score of 580, on a scale of 300 to 850 …

Some housing industry groups lauded the change (the insurance rate cut), saying it could increase home buying by offsetting recent rises in mortgage rates. Supporters of the reduction were disappointed that the Trump administration reversed course …

The FHA came under severe stress after the financial crisis. In 2013, it needed $1.7 billion from the U.S. Treasury, its first bailout in 79 years, due to a wave of defaults. To replenish the FHA’s coffers, the Obama administration several times increased the fees the agency charges. The law requires the FHA’s capital reserve ratio to stay above 2 percent, and the agency hit that level in 2015 for the first time since the bailout. (Read the full article)

 

The persistence to support the housing market at any cost is staggering. The mortgages issued to borrowers with low credit score and without substantial down payment are the first to default if the economy goes sour. Should the federal government bail out the lenders in this case?

 

See also:

Trump halts FHA fee cut

Trump Reverses Obama’s Mortgage Fee Cuts on First Day

HUD suspends FHA mortgage insurance rate cut an hour after Trump takes office

Day One Action: Trump Suspends FHA Premium Reduction; Move Makes Perfect Sense