Probable Delay, Possible Reversal for FHA Premium Cut


Secretary of Housing and Urban
Development (HUD) nominee Ben Carson said at his confirmation hearing, “Certainly, if confirmed, I am going to work with the
FHA administrator and other financial experts to really examine that policy.”  He was talking about an earlier announcement
from the current HUD head that FHA insurance rates were going to be cut.  On January 12, when Carson made that remark,
most everyone viewed it as a throw-away line.

Now not so much. 

As background, on January 9, current
HUD Secretary Julian Castro announced a 25-basis point cut in the annual
premium charged for FHA insurance.  The reduction,
scheduled to go into effect on January 27, would return FHA annual premiums
almost back to where they were before a crisis in the FHA insurance fund caused
substantial hikes in both the annual and the upfront premiums.  Castro said the cut should save homeowners an
average of $500 the first year.

A press release today from the Mortgage
Bankers Association says, “Based on recent testimony and political pushback, we
believe there is a strong chance the most recent MIP reduction…  may be one of the rollback actions taken soon
after President Trump takes office.”

MBA says it expects this change will
be effective immediately and “could create significant operational challenges
for lenders and their customers.” The association urged its members to prepare
to unwind any changes they have already made to adjust for the new rates if the
delay, in fact, occurs.

InsideMortgageFinance (IMF) said yesterday that it had learned from an industry
source that, immediately following his inauguration on January 20, President
Donald Trump “will be issuing an executive order that freezes all past actions
over a certain period of time. The FHA premium reduction gets swept into this.”
Further, IMF says that officials working for the incoming HUD Secretary are
preparing a mortgagee letter that will officially scuttle the cut.

Another viewpoint, this one from Compass
Point Research and Training, says its conversations lead it to expect a delay
in the cut though not necessarily a reversal. 
However, if a delay does materialize, it increases the earlier odds it had
put on a reversal from 40 percent to 70 percent.

An announcement from the Trump
Administration to the press said, “The incoming policy team has not seen
the model the outgoing administration used, nor their analysis, and nothing was
communicated to the incoming team before the announcement was made. The new
team looks forward to seeing the financials to ensure there is the right
between encouraging sustainable home ownership at an individual level
and protecting taxpayers against future losses to the entire program…No
determination has been made on this last-minute policy change by Secretary
Castro that could detrimentally impact FHA’s reserves.”  Compass Point said, while the statement is
ambiguous, it does indicate an inclination to reverse. 

Compass Point says it views any
impact from the previously announced cut as modest; not producing a significant
shift in volume from the GSEs and their private mortgage insurers to FHA.  Carson’s other comments at his confirmation
hearing also suggest that additional pricing changes at the FHA will be less
likely as he prefers seeing more private capital in the mortgage market.

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