Donald Trump has certainly given a lot to talk about in the last few days. It appears that he is going the extra mile to give this country a 180-degree turn in different aspects as soon as possible. An hour after becoming the official president of the United States, he caused a shock among both parties. Mr. Trump’s administration decided to suspend by all means a rate cut that was pending for mortgage insurance, one that is necessary for loans that are backed by the Federal Housing Administration (FHA). Those individuals with poor credit and first-time home purchasers really benefited from it; therefore, this action has taken many people a few steps backward in their plans. There are some republicans who have stated in public to be deeply concerned about this rate cut, as it could end up costing taxpayers meaningful sums if different factors started to go down the hill.
What Does the FHA Do?
For those of you who are not aware, the FHA is not the institution that provides loans. Its tasks consist of insuring mortgages, and collecting fees from borrowers in order to reimburse lender if a default comes to pass. Even with a credit score of 580, borrowers can be approved for a mortgage that is backed by this institution. The down payment can be as small as 3.5%. In the third quarter of last year, the average FHA borrowers’ credit score was that of 679.
In recent years, loans that are backed by the previously mentioned institution have seen a rapid growth. The majority of the risky FHA market is now controlled by lenders not chartered as banks. This definitely has grown some concern, as non-bank lenders tend to have different business models, and thus, rules tend to vary in several aspects. Due to this, confusion often arises.
Ben Carson Speaks up on the Matter
During the confirmation hearing, where Donald Trump presented Ben Carson as the nominee for HUD secretary, Senator Pat Toomey stated that private mortgage insurance should certainly contribute in a bigger way when it comes to houses that are obtained by purchasers who cannot afford the traditional 20% down payments that are often required.
Ben Carson agreed with Senator Pat Toomey. He went on to mention that if confirmed, he would examine that policy by working with the FHA administrator, as well as with other financial experts. (Before his confirmation vote, the suspension rate cut came to pass.)
Letter to Real Estate Industry
HUD, which oversees the Federal Housing Administration, stated in a letter, which was geared toward the real estate industry, that more analysis is required on future adjustments when it comes to the premium rates of insurances. Rather than 0.60%, the rate will now stay at 0.85% for the majority of borrowers.
In Los Angeles, California, as well as Orange counties, the FHA mortgage limit is $635,150.00 USD. If the planned reductions took place, the savings for borrowers who went ahead and put down less than 5% on a 30-year mortgage loan of $600,000.00 loan . . . would be that of $1,500.00 USD per year.
According to HUD, the suspension is indefinite. The California Association of Realtors spoke and made it clear to the Trump administration that they should review the rate reduction, as FHA-backed borrowers in California would have saved an average of $860.00 per year. They have spoken, but it appears that they have not been heard, because the situation remains the same.
Barack Obama’s Plan Comes to a Halt
In his final days as president, Barack Obama went ahead and lowered the cost of mortgage insurance premiums for FHA borrowers by one-quarter percent, but Donald Trump has restored the rate. This action has certainly caused a lot controversy among liberal groups. This group strongly believes that Republicans are just making middle-class families struggle more to purchase the house of their dreams, but if one stops and analyzes the situation, the government is just trying to break even in the long run.
Democrats seem to want to charge below-market rates, which will equal in promoting people who cannot afford homes to actually end up purchasing one. This would result in a very bad situation that will affect the entire country. It will hurt them instead of helping them. They will lose their down payment, equity, ruin their credit scores, and have blemishes on their report, for many years to come.
What Move Is the Adequate One?
There has been a lot of controversy on what is right and what is wrong on this matter. The reality is that there seems to be an imbalance, one that who knows when it will become balanced, because many things seem to be changing in meaningful measures in the government. One thing is clear: Those individuals who cannot really afford a home should definitely not jump into obtaining one due to an enticing offer.
People who have a down payment that is less than 20% of the home cost, mortgage insurance is usually required. Since most of their borrowers have down payments that are smaller than the previously stated, the Federal Home Administration requires it for every single of their borrowers. If you go ahead and put down less than 5%, insurance rates tend to be higher. FHA permits down payments that are as low of that of 3.5%. Cheaper insurance premiums translate into encouraging individuals to purchase homes with lower down payment because the penalty would be lower. Also, it encourages the purchases of more expensive homes because the cost of borrowing money would be less.
Americans Should Not Be Put at Risk
The recession that took place 2007 through 2009, made millions of Americans realize that taking on high debts is definitely not a good idea in the long run. The lives of average Joes would’ve been likely damaged with Barack Obama’s action on FHA mortgage insurance premiums. Government official should stop promoting financial ruin by masking the true reality of the situation. The financial future of millions of Americans would just end up being at risk of the unwanted.