How “Draining the Swamp” Might Affect HUD and FHA Programs
What You Can Expect From HUD and FHA Under Trump
Everyone expected a Trump presidency to be somewhat rollicking, especially with his campaign promise to “drain the swamp” in Washington. But it’s a fair shot to say that nobody expected the reality star’s presidency to be quite so covered in controversy from Day One. Just hours after being inaugurated, President Trump immediately went to work dismantling much of former President Obama’s legislation.
One of the very first things the new president targeted was Obama’s FHA mortgage-fee cut, which would have reduced the annual mortgage insurance premium in the first year for someone borrowing an FHA-backed loan.
This popular program, which was designed to help first-time home buyers and low-income borrowers secure the funding they needed to buy homes, was seen by many industry experts as a positive move. Most believed the cut would increase home buying because it helped to offset the recent rises in mortgage rates.
But with the new president’s executive orders for HUD and FHA, hundreds of thousands of American home buyers could be affected. Here’s what you need to know.
Expected FHA Rate Drop Halted
The Department of Housing and Urban Development announced on Dec. 27, 2016 that it was planning to drop its premium rates for mortgage insurance by a quarter of a percentage point on loans backed by the FHA. This was being done in an effort to bring the rates back in line with what they were before the housing crash.
Had the cut happened, those homebuyers who were getting loans backed by the FHA and who put down small down payments would have benefited by having smaller monthly payments in the first years of their mortgages. The rate change was initially set to go into effect on Jan. 27, 2017, but Trump’s executive order put the rate cut on hold.
Interestingly, Ben Carson, President Trump’s controversial pick to head HUD, and his transition team weren’t involved or even made aware of the president’s decision before the executive order was signed. Carson, who was chosen to head HUD despite having no experience in urban housing, told a Senate committee on Jan. 12 that he would have to “really examine” the change.
What Does This Really Mean for Homebuyers?
Because lenders were told in December of 2016 that the rate drop was going into effect on Jan. 27, many notified their customers of the expected lower rates. Now that the rate drop has been canceled, this has caused several issues for lenders.
For starters, lenders now have to re-disclose to their borrowers that their rates are going to be higher than they were originally told. For a lot of buyers, this means they could actually become priced out of their desired market.
In fact, according to the National Association of Realtors (NAR), as many as 40,000 buyers this year, who would have otherwise been able to afford their home purchases under the lower rate, will now be unable to get the home they wanted under the new president’s executive order. The NAR also estimated that between 700,000 to 800,000 buyers will be forced to pay more for their mortgage insurances under the new FHA rulings.
It is important to note that the executive order stopping the rate drop could be reversed in the future should President Trump choose to do so. But, whether or not Trump and Carson will make that happen is anyone’s guess.
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