Jan242017
Did Trump raise the FHA insurance premium to screw California?
Higher FHA mortgage fees hurt real estate markets most in areas that did not vote for Donald Trump.
In one of his first acts as President of the United States, Donald Trump suspended the lowing of FHA mortgage insurance premiums scheduled by outgoing president Obama. If Trump had done nothing, on January 27th, FHA mortgage insurance premiums would have dropped from 85 basis points to 60 basis points, a significant reduction. In effect, Donald Trump raised FHA insurance premiums with his decree.
Why did he do this? Lowering FHA insurance premiums would help first-time homebuyers and working-class families on the margin afford a home of their own. Is the real estate mogul anti-ownership? Does he want to price out working-class families? The answer to both questions is likely no.
Who else is harmed by raising the FHA insurance premium? Potential homebuyers in states like California and New York that didn’t vote for him. The costly coasts endure the highest real estate prices in the nation, and first-time homebuyers and working-class families struggle most in those states. However, Trump feels no deference to California or New York because they didn’t help him with the election. In fact, those states so overwhelmingly supported his opponent, that he lost the popular vote. Is this political payback?
Is Trump’s suspension of FHA mortgage insurance premium cut good or bad?
January 20, 2017, Brena Swanson
… the Mutual Mortgage Insurance Fund, reached its Congressionally mandated threshold of 2% ahead of schedule in November 2015.
The news came as a surprise since the MMIF reaching 2% went directly against speculation that Former President Obama’s decision in January 2015 to reduce the FHA’s annual mortgage insurance premiums by 50 basis points would negatively effect the health of the MMIF.
Jeb Hensarling and the usual suspects said lowering the FHA mortgage insurance premium in early 2015 would be an epic disaster requiring a government bailout. Hensarling ranted about how irresponsible it was to expose taxpayers to such risks. Of course, as usual, Hensarling was completely and totally wrong, as paid shills often are.
Then, in January of this year as the Obama administration prepared to leave office, FHA announced that it was cutting its annual mortgage insurance premiums again. …
IMO, this is all political theater.
Obama lowered the FHA insurance premium because he knew it would put Trump in a bad position. If Trump rescinds the cut, he looks like he’s betraying working-class voters. If Trump allows the cut to go through, he weakens Congressional support in his own party that he needs to pass other legislation.
Personally, I believe Trump will turn this around to his advantage. By rescinding the cut now, it will be news for a nanosecond as it gets lost in the flurry of activity as he takes office. His working-class supporters will hardly notice, unless they were about to buy a house (I know a Trump supporter directly impacted by this decision).
If Trump waits about 6 months, he can announce that after careful review, it’s time to lower the FHA insurance premium to boost ownership among working-class voters. By waiting, he gains credit for the idea, and he can time it to occur during a down time in the new cycle where it will garner more attention.
Scott Olson, the Community Home Lenders Association’s executive director, is hopeful that the cut will stick around after review.
“Based on the prior administration’s lack of communication on the FHA premium reduction, we believe the decision to review such action prior to implementation is prudent. We are confident the review will support a premium cut,” said Olson.
I believe it will — after enough time has passed for Trump to claim credit for the idea.
“Our hope is the Administration will conduct a comprehensive review of housing policies and implement changes that will help millions of Americans who have been left out of homeownership for far too long,” continued Olson.
Cue the industry spin.
The cut will have an impact on future borrowers said National Association of Realtors President William Brown, “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. We’re disappointed in the decision but will continue making the case to reinstate the cut in the months ahead.”
“We hope HUD and the Trump administration will make it a priority to quickly review the reduction in the FHA mortgage insurance premium,” said California Association Of Realtors President Geoff McIntosh. “Homebuyers in California, who would have saved an average of $860 a year, will be negatively impacted more than any other state by the decision to not reduce the FHA premium.
While I rarely agree with any statements from a realtor association, this statement is correct: California will be impacted more than any other state.
Do you think Trump did that intentionally?
Considering how irresponsible it was to lower premiums on FHA mortgage insurance, what President Trump did was the fiscally responsible thing to do.
The move by the Obama administration to lower the premium was the typical short-term thinking we usually get from government. “Hey, everything looks good right now, so let’s just change things and act like nothing is ever going to change.”
Similarly: “ooh, we have a slight budget surplus this year, let’s spend like that will never change!”
Clearly keeping FHA mortgage insurance premiums at the same level as they were during the Obama administration had nothing to do with trying to harm the people of California.
Housing prices in California are already unaffordable. By making the prices slighty more affordable will not benefit anyone in the long term, it will only make the next housing crash even worse.
Underfunding the FHA mortgage insurance pool of $ will only lead to another bailout in the future.
Kudos to President Trump for taking the responsible action, regardless of whether it will make people happy with him or not.
If Obama were serious about lowering the FHA insurance premium, he would have done so last fall. The insurance fund finally got back above its 2% mandated capital reserve level, and with the high fees they are charging, the fund is soon to have a large surplus. Assuming we don’t have another crash, Trump will lower the fees eventually because otherwise the FHA insurance fund will have a large surplus. This isn’t money the government can spend on something else because the fund isn’t part of the general treasury. The fees will come down, it’s only a matter of when.
“Lowering FHA insurance premiums would help first-time homebuyers and working-class families on the margin afford a home of their own.”
No it doesn’t! The extra leverage just gets built right into the price. Take the leverage away and the price drops.
If you really want affordable housing, get the government out of the marketplace and make banks (or whoever lends money) take the loss if the loan goes bad. Right now we have the government backing 80% of all mortgages and the Federal Reserve sitting on nearly $2 trillion of mortgage back securities which banks were allowed to dump there after the last housing bubble collapse, all in the name of “helping the economy”. So, essentially no lessons were learned.
I can’t argue with your conclusion. I’ve made the same argument myself many times. The market will find a new equilibrium price over the long term to match whatever terms are prevalent in the market. In the short term, lowering the fees would be a boost, but over time (and probably not much time) the stimulus will wear off, and prices will be higher than before at a new equilibrium point.
How long were these premium cuts in place for????
Literally 1 week ? LOLOL
This is much a do about nothing.
I can’t even read this site anymore. Our media is a train wreck all around.
The premium cuts never went into effect. The point in the post is that this was largely political theater orchestrated by Obama as he left office.
Paging ALL ‘conventional mindset’ LA/OC SFR speculators…..
FYI: when markets aren’t real, neither is CONfidence.
Get that through your head… lemmings.
They will discover this reality as soon as mortgage interest rates go on a sustained rise.
Democratic state AGs join fight to save CFPB from Trump
The embattled Consumer Financial Protection Bureau, which top Congressional Democrats recently pledged to defend against potential attacks from the Trump administration, has more defenders in its corner now, as more than a dozen state attorneys general are joining the fight to protect the CFPB.
According to multiple reports, including Reuters and The National Law Journal, the attorneys general of Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont and Washington, as well as the District of Columbia are seeking to intervene in the legal battle between the CFPB and PHH over the constitutionality of the CFPB.
Last year, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled that the CFPB’s leadership structure was unconstitutional and vacated a $103 million increase to a $6 million fine levied against PHH by CFPB Director Richard Cordray.
That decision makes Cordray removable “at will” by the president rather than “for cause,” as previously stipulated.
The CFPB and the government are fighting back against that ruling, asking the full Court of Appeals to rehear the case.
The Court of Appeals has not yet made its decision on whether to rehear the case, but now the Court has some new information to consider, courtesy of the 17 attorney generals, who say that the election of Donald Trump compels them to intervene in the CFPB lawsuit.
“When PHH filed the original petition for review in June, 2015, there was little reason for the State Attorneys General to intervene. At that time, the CFPB still had an independent Director and was fully committed to seeking rehearing to challenge the panel’s ruling and defend the constitutionality of the bureau’s independent structure,” the AGs state in their motion to intervene.
“But as a result of the presidential election,” the AGs continue, “the situation has changed.”
The AGs noted that as president-elect, Donald Trump expressed “strong opposition” to the Dodd-Frank Wall Street Reform Act.
The AGs also noted that, according to various reports, the Trump administration is rumored to be planning to fire and replace Cordray shortly, and could take other steps that could directly impact how the PHH lawsuit proceeds, if at all.
“Given the position of the president-elect and the new administration, it is urgent that the State Attorneys General intervene in order to protect the interests of their States and their States’ citizens in an independent CFPB,” the AGs state.
The AG state that they should be allowed to intervene in the case and contribute their perspective because the Trump administration may not defend the CFPB’s structure, as the Obama administration did.
“The incoming administration has indicated that it may not continue an effective defense of the statutory for-cause protection of the CFPB director,” the AGs state.
“A significant probability exists that the pending petition for rehearing will be withdrawn, or the case otherwise rendered moot, in a way that directly prejudices the interests of the State Attorneys General and the citizens of the States that they represent,” the AGs continue. “Allowing the State Attorneys General to intervene would eliminate that risk and ensure that the courts can resolve this important controversy.”
The AGs argue that should the government give up in its fight to defend the CFPB, the consequences would be severe.
“Should the respondent choose to forgo further defense of this action, the interests of the State Attorneys General, and the citizens whom they represent, will be seriously impaired,” the AGs write.
“The panel’s decision effectively rewrites the statute, permitting the immediate termination of the Director at will,” the AGs continue. “This will not only compromise the independence of the agency, it will likely derail pending policy initiatives and enforcement actions and possibly call into question the validity of past initiatives. As a result, the State Attorneys General and their States’ citizens will be directly prejudiced.”
Federalism + Lack of Standing = They have no case.
Buh bye Cordray. It was nice knowing ya’. (Cue John Lennon’s Instant Karma 😎 ).
Wells Fargo accused of falsely overcharging mortgage borrowers
Four former Wells Fargo employees in the Los Angeles region say the account scandal was not the only way the bank deceived borrowers, according to an article in ProPublica by Jesse Eisinger.
According to the article, the bank improperly charged borrowers to extend their promised interest rate when their mortgage paperwork was delayed.
However, the article explained that the delays were usually the bank’s fault but that management forced them to blame the customers, finding a variety of strategies to shift responsibility.
The alleged claim reopens a fresh wound for the bank given that its still cleaning up from its major account scandal announced in September of last year.
In the bank’s latest fourth-quarter earnings report, CEO Tim Sloan said, “We continued to make progress in the fourth quarter in rebuilding the trust of our customers, team members and other key stakeholders.”
From the article:
To say that the delays were “usually the bank’s fault” is probably not true. A lot of people drag their feet when submitting paperwork for a mortgage loan. Think of all the complaints we’ve heard over the years about how miserable it is to get a mortgage these days because the requests for documents never stop. Many borrowers get frustrated when they discover this and it isn’t hard to see how they might procrastinate when asked for W-2s and bank statements for the 5th time. Not that banks don’t cause delays also. They have been perpetually understaffed for the past 5 years and each time rates drop it leads to a massive wave of refi’s, causing delays in mortgage processing due to the crushing demand.
My only point is there’s a lot of gray area hear, and while I’m sure Wells has done their fair share of wrongly pushing re-lock fees onto borrowers, it’s not always their fault when it happens. Many times it will be a combination of bank and borrower causing the delays.
One other overlooked aspect is that TRID led to increased processing times, so companies that did not extend their standard lock time from 30 to 45 days would have a higher instance of re-locks occurring. It would be interesting to see if Wells saw this as an opportunity for profit by intentionally steering borrowers to a shorter 30 day rate lock for the purposes of charging them a fee when that original lock expired. I wouldn’t put it past them, particularly if bonus incentives were not properly aligned to discourage unethical behavior.
If there’s one thing I’ve learned in business, it’s that people will do what you incentivize them to do.
When I go back to my rural hometown, I notice a lot more drug use than when I lived there. Alcoholism was always a problem, but now it’s alcohol, crystal meth, pot, and probably others I’m not aware of.
THE OPIOID CRISIS IS A HOUSING CRISIS
America has a drug addiction epidemic spreading quickly across America. In the past year, 91 people died of a drug overdose each day, and the number of opioid-related deaths have tripled in the last 16 years.
At the Housing Assistance Council’s recent biennial Rural Housing Conference, national policymakers began proposing a new idea to help people struggling to kick their addiction: transition housing. CityLab interviewed Alan Morgan, director of the National Rural Health Association about how transition housing infrastructure would be critical in solving America’s addiction crisis:
The opioid addiction crisis has been at the forefront of a lot of discussion this past year, but it still seems as though there are many challenges to be worked through—especially housing. How does affordable housing intersect with the opioid epidemic in rural communities?
We have an unfortunate tendency to silo our sectors. When it comes to the opioid epidemic, we can no longer afford to do that. It’s a health issue, but there’s a transit component, and there is certainly a housing component. People need to be in a stable, drug-free environment to complete the recovery process. And in rural areas, there’s a real shortage of affordable housing that is safe and drug-free. If people get into treatment then are released back into the same housing situations where they have access to opioids, then it just exacerbates the issue.
So what often happens is that people struggling with addiction fall into homelessness: Around 35 percent of homeless individuals nationwide struggle with drug abuse. But unfortunately, rural homelessness doesn’t have the same visibility as it does in urban areas. In smaller communities, people will often bounce around the homes of extended family, but the transient nature of rural homelessness is not a visual cue that people understand. It’s been hard for communities to come up with a solution to problems they can’t see.
The U.S. Cities That Are Gentrifying the Fastest
http://rdcnewscdn.realtor.com/wp-content/uploads/2017/01/gentrification_map-01-1.png
Anybody faulting Trump for rescinding this FHA premium drop is probably thinking selfishly and not about good governance. Why would he allow this to move forward and potentially imperil the government with another bailout, before he even has a confirmed HUD Secretary? Wouldn’t the prudent thing be to get an analysis from the actuaries at HUD and the recommendation from the new HUD chief before carrying out the actions of a prior administration? If things should go wrong, Trump will be held responsible, not Obama.
Not only that, but the insurance fund is at the 2% statutory minimum. It doesn’t mean that a bigger cushion shouldn’t be built up, particularly when you factor in the high proportion of mortgages that are low-down payment, low-fico FHA loans compared to the last housing crash, when subprime absorbed most of that business. Trump is doing the prudent thing by waiting to get the facts before taking any action.
Disclaimer: I would stand to benefit from a lowering of premiums since it would lead to more mortgages being originated. I place the fiduciary of the taxpayers above my own selfish interests.
Nice post.
Kudos!
Trump wants California Housing To Tank [email protected]@@!!
Maybe when he cuts back the regulations on lenders there will be an uptick in defaulted loans and make higher mortgage insurance premiums necessary?
That’ a scenario that might come to pass. I hadn’t thought about it that way. I rather doubt they gave it that much thought, but it may turn out to be the right decision if he does lower standards to juice the market.