Donald Trump just made a day one announcement: FHA Premium Cut Officially Reversed; Mortgagee Letter Already Out.
The newly installed Trump Administration has indefinitely suspended a scheduled reduction in the annual premium for Federal Housing Administration (FHA) insurance. A 25-basis point reduction in that premium was announced by then Housing and Urban Development (HUD) Secretary Julian Castro on January 9, scheduled to go into effect on January 27.
Mortgagee Letter 2017-07 was issued about an hour after Donald Trump took the oath of office as President, counteracting the earlier Mortgagee Letter 2017-01.
Move Makes Perfect Sense
Trump’s action makes perfect sense. FHA loans are “government guaranteed”. That of course means taxpayers are on the hook for defaults.
On January 9, House Financial Services Committee Chairman Jeb Hensarling stated Obama ‘Parting Gift’ Puts Taxpayers at Risk of Another FHA Bailout.
Hensarling is correct.
FHA Absurdities
- FHA loans are known as being one the easiest programs to qualify for. Applicants only need a credit score of 580, and downpayments can be as low as 3.5%.
- FHA loans have some of the lowest mortgage rates available. Rates on FHA loans are consistently lower than similar conventional loans. This makes FHA one of the best loan programs available.
- FHA loans are also the most likely of any major loan to get approved.
Over 70 percent of FHA loans closed in May of 2016. Bullet points from Mortgage Insider.
Given the FHA approves loans at lower credit scores and lower down payments than the private market, FHA loans ought to reflect that risk and have a higher interest rates than the private market.
Taxpayers bear this risk.
Government ought not be involved in housing at all. The FHA is best shut down.
Mike “Mish” Shedlock
Yep. Get the bureaucrats, politicians, and hacks out of housing. And energy, agriculture, education, commerce, money laundering, health insurance, labor, transportation. Just for starters.
That could be accomplished by abolishing the fed reserve not to mention much more.
NAR already out with – predictable – response
.@nardotrealtor Pres “disappointed” with FHA MIP cut suspension but says NAR will work to reinstate cut http://bit.ly/2iKOhaV
The National Association of Realtors said it was disappointed by the decision, however, and will continue to make the case for a reduction.
“According to our estimates, roughly 750,000 to 850,000 homebuyers will face higher costs and 30,000 to 40,000 new homebuyers will be left on the sidelines in 2017 without the cut,” the trade group said in a statement.
If a quarter basis on the interest is what stands between you being qualified for or a mortgage or not, then you really aren’t qualified.
It is not about the interest rate on the mortgage. Look up Mortgage Insurance Premium and learn something.
We know what it about!
NAR needs to get real. The borrowers who become disqualified will just be kept from getting in trouble.
Realtors want the commission now; your future is incidental and that was part of the housing crash. I saw it happening, I’m a Realtor. (But not a good one, I care about my clients more than the commission.)
The FEDERAL government should be SUSPENDED.
At least until all the investigations, indictments, trials, convictions, and the best part, executions for all those found to have violated their oath of office to “preserve, protect, and defend the Consitution of the United States” are concluded.
We can go all the way back to JFK. I’m sure he would approve.
“Better yet, government ought not be involved in housing at all. The FHA is best shut down.”
In rare complete agreement. The FHA was established because the mortgage market had been completely destroyed and was non-functional in the Great Depression. That is no longer the case today. The FHA is now a crony-capitalist plaything for the FIRE economy.
FHA, NATO, even the Federal Reserve…they are all anachronisms, institutions that may once have served a purpose, but no longer do. I mean the bond market seems to be pretty good at setting rates…do we really need Janet and building full of overpaid PhD’s and assorted beauracrats costing taxpayers a small fortune, while also messing up the economy?
May not seem like much of a “big deal”, but it sends a signal that Trump is going to look out for the best interest of all American taxpayers, not just accommodate a few special cases. Might as well get started to fight the special interests, such as the realtors.
YEP! This came about PROBABLY because the Realtors gave a boatload of $$ to the Dem’s….and it was payback, before they got kicked out of office. great job, Prez Trump !!
HAHAHA – just like Hillary Criminal Account – this has NO MORE influence.
Yes, for sure, we can’t have those special interests, Americans seeking home ownership,. running amok. I remember twice in our active military days, when we would not have been able to buy a home without FHA and yes we paid the mortgage insurance premium that protected the government.
It’s worse than that Mish. Check out Colorado”s CHFA program. You can get a 3% grant for the FHA 3.5% min, have the closing costs paid buy the seller, and the last time i knew someone who used this program you only needed $1000 into the transaction. Not $1000 for the down payment. The $1000 can be from the appraisal(approx$450-$500) and home inspection ($250-$350). Who says you have to be able to afford a house to actually buy a house./s And taxpayer guaranteed! We’re $#%@ed!
Home ownership is a right!. ;>)
“Home ownership is a right way to keep commission money flowing into the pockets of our membership. Don’t let our pollyanna cheerleading make you think otherwise”
Fixed your post. =)
Kudos to Donald! Off to a good start.
Government should build roads and provide for national defense. Period.
And print money based on our assets. And go after counterfeiters and assorted other commerce-related crime.
– It’s a GOOD first step. Because it’s a suspension of the premium REDUCTION.
Having just seen the inauguration I assume that the few words Trump spoke to Barry immediately afterwards were “You didn’t pardon the bitch did you?”
The move makes sense to me, but ultimately it should be an actuarial decision. The bigger concern with me is whether this and other decisions are cohesive and thought out or simply knee jerk responses to simply undo anything Obama did.
Meanwhile…
” Mnuchin Wants To INCREASE The Size Of The IRS ”
” President-elect Donald Trump’s pick for secretary of the treasury, Steve Mnuchin, said at his Senate confirmation hearing: “The IRS headcount has gone down quite dramatically, almost 30 percent over the last number of years. I don’t think there is any another government agency that has gone down 30 percent. Especially for an agency that collects revenues, this is something that I’m concerned about, about”
http://dailycaller.com/2017/01/19/mnuchin-wants-to-increase-the-size-of-the-irs/
– Very sound move !!!!!!
Don’t forget I was the one who told you about Trump’s ironic civil war symbols.
https://mishtalk.com/2017/01/19/drunken-alex-jones-goes-on-air-discusses-dinosaurs-makes-fool-of-himself/
We need the revenue for Trump’s infrastructure repair/upgrade promise.
Let’s squash those mainly wealthy loophole jumping, tax avoiding, tax cheats!
Nice! Surprisingly so, coming from someone who is a real estate hack himself!
Now let’s just hope he keeps it up, and that it wasn’t just some minimally practically relevant symbolic gesture. As a simply, straight forward metric by which to measure the quality of Trump’s economic policies as pertains to real estate: The closer nominal Manhattan hosing prices at the end of his term reflect what they were when Nixon decoupled from gold, the better.
Mish wrote “Government ought not be involved in housing at all.”
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I can go with that. So when do we get rid of the mortgage interest deduction, one of the biggest government giveaways?
When we get the simple flat tax, like Russians have. Most Russians do not even have to file a tax return; their paycheck deductions of 15% have already taken care of their income tax obligations.
Well Obama copied the ACA (aka Obamacare) from Romney & Nixon.
So now Trump will copy BFF Putin’s tax model? [roflol]
And it really doesn’t amount to much, at least on a low interest rate mortgage. All it did for me these past few years was to help offset capital gains I had to pay on some stock sales. But once again it’s a sacred cow that people seem to like, so it stays.
@kojeg – your post is a prime example of the fallacy of conclusions that one can draw when the majority of their experience is insular and applied only to oneself. The mortgage interest deduction is one of the bigger government giveaways at $70 billion yearly and the real estate lobbyists are up in arms about the possibility of it being killed. See:
==========
Powerful lobbyists swoop in to save sacred tax break
Comments from incoming administration officials spark a scramble to save the mortgage interest deduction.
By Lorraine Woellert
12/31/16 07:51 AM EST
One of the most powerful lobbies in Washington is preparing a battle to preserve the strength of what has always been untouchable in the tax world: the mortgage interest deduction.
Realtors, home builders and bankers have for decades successfully defended the $70 billion mortgage tax break, claiming that killing it would crater the housing market and undermine the American dream of home ownership for middle class taxpayers.
….
http://www.politico.com/story/2016/12/lobbyists-mortgage-interest-deduction-tax-233081
(short answer) The deduction would be hard to take away because it benefits the most important people – the legislators in most states and in congress. Many of them own multiple houses; hence the second home deductions.
AND: Real estate is where people live – apparently not know by some people – and if it isn’t profitable there will be no private industry rentals. If houses took more cash to buy, more rentals would be needed. If rentals aren’t profitable, governments would need to supply housing and so forth. We must look at the big picture.
But all of that is due to the disruption of normal house purchases due to the MID. Take that away and over time, the RE market will restructure itself and not be semi-dependent on a government tax incentive. Housing needs to be returned to as a roof over your head, NOT an “investment” to be “flipped” or used for retirement.
P.S. I’d also eliminate the capital gains exclusion on housing sales.
Here’s interesting commentary on Trump’s EOs on FHA and Obamacare.
The blogger thinks Trump may opt for an Israeli type of mandated health insurance.
https://willyloman.wordpress.com/2017/01/21/the-trumpening-rather-than-killing-obamacare-on-his-first-day-as-promised-the-donald-kills-regulation-instead-how-populist-of-him-%e0%b2%a0_%e0%b2%a0/
@Atossa – Thanks for a good link!
Trump’s grandstand declaration against Obamacare on his first day as president is an example of him not thinking through the possible consequences of his actions, whether written or twittered.
Removing any part of Obamacare before a replacement is ready will throw the whole system out of balance and will likely kill the ACA BEFORE a replacement is actually ready. And then 20 million people may be left high and dry w/o any or w/o effective insurance coverage.
Trump is a fake. His public image, that he has the peoples’ interest at heart, is FAKE. It’s only a matter of time before even his strongest supporters begin to realize it.
He crawfished on deporting all illegals and individual tax cuts even before his election [but most people probably didn’t realize it.] Instead of him “draining the DC swamp” he now rubs shoulders with DC swamp alligators. Before he called Hillary, crooked. Now he praises her. Instead of being a man of the people, he has appointed wealthy wall street oligarchs to his administration. That he enacted this obscure FHA EO right out of the gate speaks volumes because it hurts poor and middle-class homeowners and benefits wealthy oligarchs who invest in conventional mortgages.
Trump keeps repeating how he will put Americans to work building national infrastructure. Maybe he is covertly referring to chain-gangs. The US prison system may go mostly private for profit with prisoners becoming a nationwide slave work force.
This was a good call. I’m a real estate broker, but I also understand that we have grossly distorted housing markets. The premium reduction was not warranted. It makes no sense to put taxpayers at more risk in an overheated housing market just so we can help more buyers chase artificially inflated prices.
If you put a buyer into a house with only 3.5 percent down, and market prices decline just one percent, what do you have??? An underwater borrower!
In addition to this FHA action, the new administration should also be halting illegal investment (aka money laundering) from foreign nationals, another source of home price inflation that receives far too little attention. Houses should not be piggy banks for foreign oligarchs, drug lords or those just looking to park cash in a shell corporation/trust.
Regarding shutting down the FHA, I agree, but, don’t kid yourself. The government has long been involved in housing, and even without FHA, Fannie Mae, Freddie Mac, etc, in the form of deposit insurance (FDIC, FSLIC, etc). In the great depression of the 30’s, the banks took a beating when home buyers couldn’t pay their mortgages, leading to runs on banks. Since then Banks avoided mortgages, which make no sense (to hold a mortgage, a bank needs to borrow short (demand deposits) and lend long, which works great until interest rates change.
The risk of doing that came home to roost in the late 70s and early 80s. Savings and loans were the primary home lender at that time. They had issued tons of mortgages at 5-6% in the 60s and early 70s, and lo and behold, by the early 80s they had to pay up to 15% to “borrow” the money from depositors. You go broke quickly if you borrow money at 15% and then earn 6% on it. Many savings and loans and the like folded from that alone. Others tried to “grow their way out”. If you grow to 10x the size you were, the money you lent out long term at 6% ceases to be as significant. A few savings and loans survived by growing their way out, but many others made even worse loans trying to grow too fast, and folded anyway.
Reblogged this on John Barleycorn and commented:
Deflate the bubble
Good move on his part.
Why did Trump [supposedly a man of the people] right out of the gate enact this obscure FHA EO that hurts poor and middle-class homeowners ??
Trump [himself a real estate mogul] has oligarch comrades who are rich via investing in conventional mortgages. FHA is their enemy.
Trump knows the housing picture is not brightening and most likely will not because the benefits of historically low interest rates are mainly behind us. Those controlling the narrative, big builders and realtor associations wishing to drive sales, often fail to tell us the true story.
Our current policies create a questionable base for higher home prices when we consider the low end of the market is driven by Fannie, Freddie, and the FHA all insuring 3.5% down payments from borrowers that often have a weak credit history. The article below explores some of the issues currently facing housing.
http://brucewilds.blogspot.com/2016/10/the-housing-sector-shows-little-promise.html
Nice way to spin it. Taking money out of the hands of people paying their mortgage is about making government smaller!
Your argument about the program possibly encouraging bubble behavior by letting people with slim down payments buy houses that are too expensive doesn’t really address the fact that we are talking about people who already have houses and mortgages and are already paying them.
A true policy attuned to your concerns would leave the reduction for existing mortgages but slowly phase out subsidies for new mortgages by raising the standards for FHA and phasing out the deduction for mortgage interest.