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.
Hensarling is correct.
- 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.
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.
Mike “Mish” Shedlock