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FHA suspends planned mortgage insurance cut

In one of the first acts of the Trump Administration, the Federal Housing Administration (FHA) has suspended indefinitely a recent announced cut to insurance premiums on FHA loans. 

Earlier this month, the Obama administration announced an eleventh-hour move to reduce the annual premium on most FHA loans by 25 basis points effective on Jan. 27.

FhaMinutes after President Donald Trump was sworn into office, the FHA issued a mortgagee letter that suspended the cut indefinitely, saying that “more analysis and research are deemed necessary to assess future adjustments.” The letter also said FHA needs to weigh “potential market conditions in an ever-changing global economy that could impact our efforts.”

An insurance cut was generally supported by the mortgage industry. The U.S. Mortgage Insurers, however, opposed the move, saying it would push people unnecessarily into the government program and away from conventional loans that are privately insured.

U.S. Mortgage Insurers President Lindsey Johnson praised the move to suspend the cut.

“Today’s action allows the incoming administration appropriate time to begin its work and to determine if an FHA mortgage insurance premium reduction is needed, and how it might expose taxpayers to undue risk,” Johnson said. She said that conventional Freddie Mac and Fannie Mae loans can be a better deal for homebuyers because the insurance can be canceled after the borrower has established sufficient equity in the home. FHA requires borrowers to hold insurance for the entire loan term. 

“While the FHA serves an important role in the housing market, it has expanded its footprint dramatically since the financial crisis and should instead remain focused on its core mission of serving underserved borrowers,” Johnson said. 

The National Association of Realtors said it was disappointed by the decision, however, and will continue to make the case for a reduction.

“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," the trade group said in a statement. 

During his Senate confirmation hearing, U.S. Housing and Urban Development Secretary-nominee Ben Carson called the late move to cut the premium "surprising" and said it would be reviewed. Carson indicated that the Obama administration hadn’t consulted or notified Trump’s transition team of the decision.

Reaction by mortgage trade associations was subdued. 

"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 [MIPs]," said David Stevens, president of the Mortgage Bankers Association. "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." 

Scott Olson, executive director of the nonbank trade group, the Community Home Lenders Association (CHLA), said  he was still hopeful the administration would ultimately approve the cut.

"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,” Olson said. “We are confident the review will support a premium cut.”

Olson said the change would help millions of homeowners “without posing risk to taxpayers.”

The cut would have saved the average homebuyer $446 a year based on the 2016 median home-sales price of homes purchased with an FHA loan, Attom Data Solutions reported this week. 

In justifying an insurance cut, the Obama administration noted that the insurance fund's reserve ratio exceeded the 2 percent threshold for the second year in a row last year. 


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