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FHA cut cancellation hurts Trump country


The National Association of Realtors (NAR) continues to make the case that the Trump administration should reinstate a cut to the insurance premiums on Federal Housing Administration (FHA) loans. Its latest study suggests that cheaper FHA mortgages could be a big help to borrowers in Trump country. 

The administration’s move to cancel a 25 basis point cut will affect both high-cost areas, the trade group said, but also wide-swaths of rural and small-town America where FHA use is the highest and where Donald Trump had a strong base of election support.  

fhacutThe Obama administration announced the FHA insurance-fund premium cut in the waning days of Obama's presidency. The cut would have kicked in on Jan. 27. The reduction was canceled before it went into effect, however, after Donald Trump assumed office.  

NAR previously estimated that 750,000 to 800,000 FHA borrowers would pay higher costs this year as a result of administration canceling the reduction. The trade group also believes that as many 30,000 to 40,000 home purchases will be lost a result of the move.

“It would affect anybody who purchases,” said Ken Fears, NAR’s director of housing finance and regional economics.

“Then, there is also a small potential for an expansion in terms of people who are able to move into the market,” he told Scotsman Guide News. “That group is much smaller, but still, relatively speaking, it is important.”

The trade group said in terms of dollar savings, FHA borrowers in the highest-cost markets, like San Francisco and San Jose, would realize the greatest savings from a premium cut. Based on the average price of a home in 2015, for example, assuming a 25 basis point premium cut, the average savings for a homebuyer in San Francisco would be $1,450 annually.

In terms of local housing markets, however, areas that would feel the greatest impact from a premium cut would be those smaller, lower-cost communities where a high percentage of the loans are guaranteed by the FHA, NAR said. These include numerous communities in Texas, the Southeast and the Midwest Rust Belt.

The most impact would be felt in Laredo, Texas; Vineland-Bridgeton, New Jersey; and McAlien-Edinburg-Mission, Texas, where FHA loans account for more than half of all loans.

The average savings per market varies widely.

“At the individual level, we are looking at about $500 a year,” Fears said. “Depending on the individual, that can be a big impact.”

Other analysts have been skeptical, however, that another premium cut is necessary at this time.

The Urban Institute, a Washington, D.C.-policy institute, estimated the reduction would have provided only modest savings, would not have expanded access to the program that much and was not worth the risk to the insurance fund. 


 

Questions? Contact at (425) 984-6017 or victorw@scotsmanguide.com.

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