Posted on 01/23/2017 7:22:55 AM PST by Dacula
President Donald Trump’s first executive order blocked a mortgage insurance premium cut that would have reduced the cost of mortgages for millions of middle-class home buyers.
The U.S. Department of Housing and Urban Development sent a letter Friday informing lenders, real estate brokers and closing agents the 0.25 percent premium rate cut for Federal Housing Administration-backed loans was suspended.
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The order, made about an hour after Trump took office, reverses a policy change announced Jan. 9 by the Obama administration that would have saved borrowers about $500 a year.
The FHA insures about 16 percent of the homes sold in the country. The loans are popular with first-time home buyers and those without the best credit.
The rate change would have gone into effect Friday.
Anyone have any idea why this was done? On the face of it the cut sounds good but I’m sure there is good reason why it was stopped.
Mortgage insurance is required on low down payment loans. I’d assume refusing to allow a rate decrease would be due to concern over the real estate bubble that has developed in some parts of the country. Low (or no) down payment equals default when the value crashes, as we saw in 2008-2009.
I suspect Obama’s EO was a land mine set for Trump but I don’t follow what Obama expected to accomplish.
Of course with Trump stopping it will be reported he hates the middle class, but is there more to this story I am missing?
I think you hit the nail on the head.
I know for damn sure the only reason Obama rushed to sign this off before he left was to make Trump look bad when he reversed it, as he knew would happen.
“Anyone have any idea why this was done?”
Yeah, it’s because a whole bunch of them shouldn’t ever been given a loan to start with, and will likely default.
“Anyone have any idea why this was done? On the face of it the cut sounds good but I’m sure there is good reason why it was stopped.”
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I believe this reg was caught up in the EO signed by Trump that suspended all new rules from going in to effect for 60 days to allow for review. The specific reg was not targeted.
Let’s see...
I purchase a HUD guaranteed first-time home that I cannot really afford on my current income.
Correspondingly, I can credit my annual income tax filing with mortgage costs, PMI and property taxes which give me a “return” on that filing.
I take my return and purchase a new F-150 Crew Cab on a 72-month loan, which I will eventually default. I’ll hide the P/U in my sister-in-law’s garage during the default period while I take out an equity loan on my home using my tax return as a down-payment.
I pay my P/U up-to-date and...
RESTART the cycle.
What could go wrong?
Why do you write all this crapola in the double and often triple negative. No one knows what you are talking about. Its like federal regulations..”you may not, unless, except...”.
No one ever said what it cost the U.S. taxpayers
No one ever said how this would impact lenders ( being forced to take higher risk borrowers into a federal loan program with no federally funded insurance against a corresponding likely increaseof defaults )
To think this was good legislation you’d have to
1) think that obama wisely considered the above
2) waited to do this until his last week of office because he was just a busy guy
To think repealing was bad you have to believe
1) heartless republicans want poor people to be homeless
2) because Trump
It was an attempt by Obama to bankrupt the loan guarantee agency. They were already running close to their lower capitalization limit and this would have put them under. A small dip in the economy would have created a crisis.
Encouraging less skin in the game wouldn’t have proved to be a healthy thing. While much of the country is still struggling to return to pre-crash valuations, there are bubbles. California, DC, others. California law makes it especially prone to boom and bust, mortgage holders can just turn in the keys and walk away, the contract is legally regarded as fulfilled via return of the secured asset. Making it cheaper and easier to have a mortgage with minimal down payment increases the risk of default. What seems “helpful” to potential homeowners on the one hand has proved harmful to them on the other, when property values fall precipitously.
It would certainly weaken the FHA and the Trump administration stated that they needed more time to study the rate cut to determine the effects.
FHA loans have replaced the private subprime and low down payment market; subprime are borrowers with dodgy credit. FHAs loans are backed by gov’t guarantee insurance. Someone who invests in a bond backed by FHA loans, called GNMA bonds, is guaranteed their principal amount. The borrower who gets a FHA loan pays an insurance premium at origination and as part of the regular monthly payment. The premium is suppose to finance the insurance payouts when a loan goes bad. Recently there has been stories about the FHA insurance is not actuarial sound. The amount of money available for insurance payments does not match the potential liabilities. Obama’s planned rate reduction would have made that under funding worse.
A banker friend explained this to me:
This was a POISON PILL Obama left behind that he signed a couple of weeks ago, that was to take effect Jan 27th.
In 2013, FHA got a $1.3 BILLION dollar bailout because Mortgage insurance rates weren’t covering claims. They did it again in 2015.
Cut the rates that were reset in 2015, and we’ll soon have to bail them out AGAIN, and no first-time home owner will be able to get a loan without 20% or more down.
THIS WAS A TRAP that Dems set for Trump, and he refused to play along.
It spin..Trump first executive order if you recall Froze all agencies till review..this spin makes it sound like he targeted this
How are you going to get the loans approved?
If you have no money how are you going to pay off the truck?
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