Trump Executive Order #1: FHA Mortgage Insurance Premiums
The Strata-Sphere by AJStrata
The first Trump Executive Order (EO) seems to be all about nothing. Even some of “Fake News” media has had a tough time blowing this one out of proportion. But of course some leftwing rags were in full angst mode (do they have any other?). But universally the “media” did not tell the whole story either.
Let’s begin with a Drama Queen from the left – Mother Jones:
Trump’s First Move as President: Screwing Over Homeowners
The administrative order will end Obama’s efforts to cut premiums on FHA-insured home loans.
resident Barack Obama issued an executive action requiring the Federal Housing Administration to decrease insurance premiums on FHA mortgages, a change that could have potentially saved low-income homeowners as much as $900 per year.
Emphasis mine at the end.
Let’s be clear, this change was directed towards a small minority of home purchasers: low-income, first time buyers. It sounds innocuous, but as we will discover this rate reduction is an echo of those risky policies that brought on the subprime mortgage disaster in the late 2000’s, which wiped out the wealth of ten’s of millions of Americans.
Why would anyone risk a repeat of that debacle? Is this all just for Political PR?
But for now, just admire the “potentially” (supposed) savings to homeowners – $900/year. That comes to $75/month. Keep that in mind.
USA Today actually had a more reasonable, if still one-sided, take on President Trump’s first EO.
In the first hour of Trump’s presidency, the U.S. Department of Housing and Urban Development sent a letter to lenders, real estate brokers and closing agents suspending the 0.25 percentage point premium rate cut for Federal Housing Administration-backed loans. The new rates, announced on Jan. 9, would have gone into effect on Friday.
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The action will affect millions of homeowners with an FHA-backed mortgage. FHA backs about 16% of the country’s new mortgages [AJStrata: remember, this EO only effected a fraction of FHA loans].
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That cut would have saved home buyers about $29 a month on a $200,000 mortgage. U.S. Sen. Chuck Schumer, a Democrat from New York, said the cut equaled an average of $500 per year.
Still “Fake News” due to implying that this applied to all FHA loans equally.
One bright spot here is the $29 a month savings for these few potential homeowners. That is a more realistic number (confirmed below). However, poor Sen Chuck Schumer is unable to do basic multiplication – or is deliberately exaggerating the numbers as did Mother Jones. For those who struggle with math like poor Chuck, his $500/yr number translates to $33.33. What is 4 dollars per month? Nothing on and individual basis.
But when you sum this plan over millions of potentially struggling home buyers – the very target of this Obama EO – then this could result in a shift of many millions of dollars. Here is a more balanced reporting from January 7, 2017. It explains a lot more about this topic:
The Obama Administration is directing, via executive action, the Federal Housing Administration to reduce annual mortgage insurance premiums by 50 basis points, from 1.35% to 0.85%.
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The White House statement says that the typical first-time homebuyer, this reduction will translate into a $900 reduction in their annual mortgage payment.
Well, at least we know were the inflated numbers came from. Was this a simple change? Not according to Congress:
While the White House says that the new premium level is fully consistent with the FHA’s commitment to continue strengthening its financial health through growing reserves, the Republicans in Congress have reservations that the Congressionally-mandated reserves are well funded.
Further, the action is certain to receive pushback in the new Republican-controlled Congress, which has to approve the cut |
