With days left before President-elect Trump’s team takes over, the Obama administration announced Monday that it would cut premiums on mortgages backed by the Federal Housing Administration, a move meant to aid homebuyers that will serve as a bonus to the housing industry but will antagonize fiscally conservative Republicans.
Julian Castro, the secretary of the Department of Housing and Urban Development, presented the rate cut, the second in as many years, as a timely move to help people facing high costs for home loans.
“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.”
The department said the rate cut will save homeowners with loans insured by the FHA about $500 this year. The rate cut will apply to new loans after Jan. 27.
Monday’s move was immediately praised by key housing industry players.
“The high cost of mortgage insurance has put homeownership out of reach for many young, first-time- and lower-income borrowers,” said William Brown, the president of the National Association of Realtors. “Now, we have a real opportunity to get back on track.”
Nevertheless, the rate cut is likely to face criticism in the days ahead as Republicans take control of the federal government. Trump’s selection to succeed Castro, retired neurosurgeon and former presidential candidate Ben Carson, will face senators Thursday in confirmation hearings and likely will be called upon to state his view of FHA policy.
Conservative Republicans have warned that the FHA could take on too much risk in lowering premiums on mortgages. The fear they have expressed is that, by lowering costs for government-backed low down-payment loans, they will introduce more risk into housing markets, undercutting less risky private options. Those concerns intensified in 2013, when the agency required a $1.7 billion funding draw from the Treasury Department, described by conservatives as a bailout.
Since then, however, the program’s finances have improved, and in November the agency announced that the reserve ratio for its mortgage fund had exceeded the required ratio, setting expectations that the Obama administration would move again to cut rates to reverse several rate increases over the course of the recovery.
