Published: Sun, January 22, 2017
Science | By Boyd Webster

Trump raises mortgage costs for many first-time homebuyers

Trump raises mortgage costs for many first-time homebuyers

On Monday, the Federal Housing Administration announced its plan to reduce mortgage insurance premiums by 0.25 percentage points for 20 to 30 year loans under $625,500, notes The Wall Street Journal.

Some experts say Trump's administration may simply be holding off on the insurance cut so it can weigh its full impact.

The FHA is required to have a capital reserve ratio of at least 2 percent. "The high cost of mortgage insurance has unfortunately put those opportunities out of reach for many young, first-time- and lower-income borrowers".

Some Republicans expressed concern about the risk of another FHA bailout should its borrowers default.

Since then, the FHA has been implementing a variety of fiscal measures to bolster its reserves to above the 2% threshold mandated under the Federal Credit Reform Act, including raising premiums and stemming losses in its HECM program. It would have reduced the FHA monthly mortgage insurance premium by a quarter point, from 0.85 percent to 0.6 percent, reducing monthly mortgage bills by at least hundreds of dollars.

If you're a borrower with good credit, today's announcement should motivate you to consider multiple home loan options, not just an FHA loan, even if you don't have much saved for a down payment.

"This is a question of simple math", Brown said. In a move that will likely affect Americans all over the country, the president signed an executive order that suspends the rate discount on FHA-backed mortgages. "If you're in the process of applying for a mortgage and your housing costs leave you little financial wiggle room each month, you need to adjust the amount of income you're dedicating to your home loan and shop for cheaper homes".

The loans are federally backed mortgages through the Department of Housing and Urban Development. Borrowers with traditional mortgage insurance can typically extinguish their mortgage insurance once they reach 20 percent equity in the property. "It's important for regulators to examine how these cuts will affect the system before widespread implementation", said Ed Delgado, President and CEO of the Five Star Institute and a former executive with Wells Fargo and Freddie Mac.

Furthermore, David Dayen writes at The Intercept, "by making FHA loans more expensive, traditional bank mortgages become more competitive".

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