The Federal Housing
Administration, the government insurer of low down-payment home loans, is
reducing the annual mortgage insurance premium by 25 basis points, which it
says will save FHA borrowers an average $500 this year.
The FHA's insurance fund was a
major player in the housing bailout, offering borrowers the only low
down-payment option available. Borrowers can put as little as 3.5 percent down
on a home with a mortgage backed by the FHA.
In 2008, at the height of the
crisis, nearly one-quarter of new loans were backed by the FHA. That is now
down to about 1 in 6. The housing bailout, however, put the FHA in the red for
several years, but strict underwriting and numerous premium hikes totaling 150
basis points, pulled it out.
The FHA's insurance fund has
gained $44 billion in value since 2012, according to the agency, and its
capital ratio has been above the required 2 percent level for two years.
"After four straight years
of growth and with sufficient reserves on hand to meet future claims, it's time
for FHA to pass along some modest savings to working families," said
Housing and Urban Development Secretary Julian Castro. "This is a fiscally
responsible measure to price our mortgage insurance in a way that protects our
insurance fund while preserving the dream of homeownership for credit-qualified
borrowers."
Industry leaders applauded the
move, but suggest more needs to be done to juice a housing market that is
becoming ever more expensive. First-time homebuyers in particular are
struggling to enter today's market, as higher home prices and higher mortgage
rates hit affordability. Underwriting remains tight, and credit scores for FHA
are still higher than they have been historically.
"Reducing the cost of FHA
loans benefits borrowers, but other changes to reduce uncertainty for lenders
would be required to truly invigorate the FHA program," David Stevens,
president and CEO of the Mortgage Bankers Association, said in a statement.
"MBA looks forward to continuing to work with all stakeholders, including
the new Administration, to ensure the safety and soundness of the FHA
program."
And therein lies the biggest
question: Will the Trump administration welcome much-needed housing stimulus or
balk at the prospect of more government risk? The Trump transition team has
been getting "good briefings" from HUD officials, according to
Castro, who says the transition is, "proceeding well." The transition
team, however, was not apprised of the premium reduction until Monday because
it could move stock prices, especially of mortgage insurers.
"I have no reason to believe
that this will be scaled back," said Castro. "The fund is in a much
stronger position than it's been in years."
Trump's pick for HUD secretary,
Ben Carson, is scheduled to go before the Senate Banking Committee this week.
Carson, who has no experience in housing policy, advocated scaling back
government programs during his presidential campaign but did not address FHA
specifically.
"Any pricing cut will likely
attract negative attention from Congressional Republicans and the incoming
Administration," FBR mortgage market analyst Edward Mills wrote in a note
to investors. "We highlight that any cut could quickly be reversed by the
Trump Administration in a matter of weeks.
HUD officials said the reduction
is likely to lower the cost of housing for approximately 1 million households
who are expected to purchase a home or refinance their mortgages using
FHA-insured financing in the coming year.