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?

 


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