In one of his first official acts as president, Donald Trump issued an executive order suspending the Federal Housing Administration’s (FHA) plans to reduce its annual mortgage insurance premium (MIP) by 25 basis points for most new mortgages with a closing/disbursement date on or after Jan. 27, 2017.
In a mortgagee letter (ML) published by FHA, it explained the indefinite suspension of the rate reduction the agency announced only days earlier.
“This guidance affects Appendix 1.0 – Mortgage Insurance Premiums of the FHA Single Family Housing Policy Handbook 4000.1, and reinstates the appendix in affect prior to the issuance of the update communicated in ML 2017-01,” the ML states.
The suspension is not shocking, considering the fact that many republicans in Congress, such as Rep. Jeb Hensarling (R-Texas) previously expressed opposition to the reduction.
“It seems the Obama administration’s parting gift to hardworking taxpayers is to put them at greater risk of footing the bill for yet another bailout,” Hensarling said in a Jan. 9 statement. “Just three years ago, the taxpayers had to spend $1.7 billion to bail out the FHA. Lowering premiums to below market rates now only puts the FHA in a more precarious financial condition. Playing politics with the FHA through cynical, surprise 11th hour rule changes is irresponsible and endangers the integrity and success of the FHA. To be successful, the FHA must be fiscally sound, with a clearly defined mission, to ensure homeownership opportunities for creditworthy first-time homebuyers and low-income families. Lowering FHA premiums now is counterproductive to achieving these goals and puts the U.S. taxpayer at greater risk.”
When the MIP reductions were announced in early January, the Department of Housing and Urban Development (HUD) said in a press release that the rate reduction was intended to reflect the fact that the FHA’s Mutual Mortgage Insurance Fund (MMIF) is showing “improved economic health” for the fourth consecutive year, having gained $44 billion in value since 2012.
Approximately 1 million households, expected to purchase a home or refinance mortgages using FHA-insured financing in 2017, would see lower housing costs as a result of the reduction while new FHA-insured homeowners potentially stood to save an average of approximately $500 this year, according to HUD.
“FHA is committed to ensuring its mortgage insurance programs remains viable and effective in the long term for all parties involved, especially our taxpayers,” the ML states. “As such, 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.”
Should this policy change, the ML states, FHA will issue a subsequent ML notifying all FHA-and HUD-approved mortgagees, underwriters, consultants, appraisers, Realtors, etc. at a later date.
Mortgage Bankers Association (MBA) President and CEO David Stevens said in a statement that MBA hopes disruption in the program is minimized.
“We recognize the administration’s need to examine the overall health of the insurance program and weigh that against the benefits of lowering mortgage insurance premiums. Given that lenders have already started preparing for the MIP decrease, it is important that any new policy be implemented in a way that minimizes disruption for borrowers and lenders,” Stevens said. “MBA looks forward to working with the new administration to ensure the long-term stability of the FHA program, creating an environment that provides clarity in regulations for lenders while at the same time promoting access to credit and protecting consumers.”
National Association of Realtors (NAR) President William E. Brown also released a statement regarding the impact of suspending the MIP reductions.
“According to our estimates, roughly 750,000 to 850,000 homebuyers will face higher costs and 30,000 to 40,000 new homebuyers will be left on the sidelines in 2017 without the cut,” Brown said. “We’re disappointed in the decision but will continue making the case to reinstate the cut in the months ahead.”