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Rate Cut Canned on Trump’s Day One

American Money BHA cut to mortgage insurance rates is suspended indefinitely, according to a mortgagee letter sent within an hour of the inauguration of President Donald Trump.

The letter, sent by General Deputy Assistant Secretary for Housing Genger Charles, said the suspension affects all FHA Title II forward mortgage programs, except for mortgages insured under National Housing Act section 247. The cut was expected to affect all mortgages with an expected closing date on or after January 27, 2017.

A previous letter sent by HUD about the cut said FHA determined “the appropriate balance of its statutory operational goals now requires a reduction of the rate of annual MIP charged.”

Friday’s letter states the FHA wants to continue monitoring the market to determine whether or not cuts are warranted.

“FHA is committed to ensuring its mortgage insurance programs remains viable and effective in the long term for all parties involved, especially our taxpayers,” Charles said in the letter. “As such, more analysis and research are deemed necessary to assess future adjustments while also considering potential market conditions in an ever-changing global economy that could impact our efforts.”

As the Obama Administration sought to reduce risk in the market in the aftermath of the financial crisis, the FHA raised its mortgage insurance premiums several times in an effort to stabilize its Mutual Mortgage Insurance (MMI) Fund. The result was higher capital reserves for the Fund but increased credit costs to qualified borrowers.

The FHA last reduced its mortgage insurance premiums in January 2015. At that time, the reduction was 50 basis points. The move drew some heavy criticism because at the time, the MMI Fund’s capital ratio was at 0.41 percent, less than one-quarter of the Congressionally-mandated 2 percent threshold. Since 2012, however, the fund has gained $44 billion in value and is now at 2.32 percent, above the level required by Congress.

Former HUD Secretary Julián Castro said earlier in January now was the time to cut the rate.

“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,” Castro said. “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.”

“President Trump's renewed focus on housing and real estate matters bodes well for lenders and borrowers. 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. “We're looking forward to the new administration acting quickly in matters directly related to the housing and mortgage industries.”

Click here to read the entire letter.

About Author: Phil Banker

Phil Banker began his career in journalism after graduating from the University of North Texas. He has covered a number of communities across Texas and southern Oklahoma, writing news and sports for publications including the Ardmoreite, Ennis Daily News and the Plano Star-Courier. He is currently a contributor to DS News and The MReport.
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