Local Real Estate News

From your local Sacramento neighborhood expert, Carlos Montoya

Trump Cancels FHA Mortgage Cuts

FHA Mortgage Cuts Are History

Unless you’ve been living under a rock for the past few months, you already know that we have a new President sitting in the White House. No matter your political position, the latest Executive Action put forth by President Trump could wind up costing you thousands of dollars over the life of your loan if you have an FHA backed mortgage.

 

What Happened to The FHA Mortgage Fee Cut?

Within just hours of taking his seat in the Oval office, the U.S. Department of Housing & Urban Development sent out a barrage of letters to lenders, real estate brokers and closing agents suspending the 0.25 percentage point premium rate cut for Federal Housing Administration backed loans.

Who Does This Effect?

The action will affect millions of homeowners with an FHA-backed mortgage. FHA backs about 16% of the country’s new mortgages. FHA loans offer easier credit requirements, lower down payments and smaller closing costs, according to the U.S. Department of Urban Housing and Development. 

William E. Brown, the president of the National Association of Realtors, said the cut allowed more people to qualify for a mortgage because more borrowers could meet the debt-to-income ratio required to borrow money.

How Much Will It Cost Sacramento Home Buyers?

The cut would have saved home buyers about $29 a month on a $200,000 mortgage. Over a 30 year fixed rate mortgage this amounts to around approximately $10,000 over the life of the loan.

FHA’s Role

The FHA sells insurance to protect against defaults and doesn’t issue mortgages. It is a popular program among first-time home buyers because it allows borrowers to make a down payment of as low as 3.5 percent with a credit score of 580, on a scale of 300 to 850.

How many people use FHA backed loans?

During the federal government’s 2016 fiscal year, the FHA insured 1.26 million purchase loans and refinances for single-family homes. Nearly 880,000 of those were purchases, worth more than $171 billion.

The Obama administration announced last week it would cut the insurance premium by a quarter of a percentage point to 0.60 percent, effective on Jan. 27.

Some housing industry groups lauded the change, saying it could increase home buying by offsetting recent rises in mortgage rates. Supporters of the reduction were disappointed that the Trump administration reversed course.

FHA in Years Past

The FHA came under severe stress after the financial crisis. In 2013, it needed $1.7 billion from the U.S. Treasury, its first bailout in 79 years, due to a wave of defaults. To replenish the FHA’s coffers, the Obama administration several times increased the fees the agency charges. The law requires the FHA’s capital reserve ratio to stay above 2 percent, and the agency hit that level in 2015 for the first time since the bailout.

Buying or Selling a Home in Sacramento? Contact Carlos Montoya

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