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 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?
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.
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.