Investments Lending

Sources: Trump plans repeal of FHA mortgage insurance premium cut

Will it be a delay or an indefinite delay?

White House

[Update: This article is updated with a statement from the Trump transition team provided to Lorraine Woellert of Politico.]

When Ben Carson, President-elect Donald Trump’s choice to lead the Department of Housing and Urban Affairs, appeared last week before the Senate Committee on Banking, Housing, and Urban Affairs, one of the topics of discussion was the outgoing administration’s recent decision to cut Federal Housing Administration mortgage insurance premiums on its way out the door.

At the time, Carson said that the Trump administration plans to “really examine” the Obama administration’s decision to cut FHA premiums before determining a course of action.

But with President-elect Trump’s inauguration mere hours away, it appears that the Trump administration will do more than just “examine” the FHA premium cut once Trump is sworn on.

According to multiple sources, the FHA premium cut, which is currently scheduled to go into effect on January 27, will be delayed, at the very least, by the incoming Trump administration.

One source told HousingWire that repealing the FHA premium cut is on the list of things that the Trump administration plans to review and/or roll back almost immediately.

The source also told HousingWire that the Trump administration will not enact the premium cut on the 27th while it considers the impact of the premium cut on the FHA’s Mutual Mortgage Insurance Fund before determining whether to proceed with the cut.

But the source said that it is a distinct possibility that the premium cut will be done away with completely.

The Trump transition team, on the other hand, told Politco's Lorraine Woellert on Wednesday that it has yet to make an official decision on the FHA premium cut. But a statement given to Woellert by a Trump spokesperson sheds some light on the incoming administration's view of the outgoing administration's move.

From Politico:

"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," a Trump transition spokesperson said. "The new team looks forward to seeing the financials to ensure there is the right balance 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," the spokesperson said.

The FHA’s MMI Fund recently reported its fourth straight year of growth, but only last year did the MMI Fund reach its Congressionally mandated threshold of 2%.

The MMI Fund exceeded that threshold by an even larger margin in 2016, reaching 2.32%, with much of the growth being driven by the FHA’s forward mortgage business, rather than its volatile reverse mortgage business as it had been in 2015.

The housing industry responded positively to the to the Obama administration’s latest cut, which would decrease annual mortgage insurance premiums most borrowers will pay by one-quarter of a percentage point, or 25 basis points.

But the response was not completely positive, as House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said that the cut to the annual mortgage insurance premium reduction puts the FHA in a precarious position.

“It seems the Obama administration’s parting gift to hardworking taxpayers is to put them at greater risk of footing the bill for yet another bailout,” Hensarling said.

As Hensarling noted, the FHA needed a $1.7 billion bailout in 2013, due to the significant shortages in the FHA’s MMI Fund, but the fund has shown four years of growth.

“Lowering premiums to below market rates now only puts the FHA in a more precarious financial condition,” Hensarling said. “Playing politics with the FHA through cynical, surprise 11th hour rule changes is irresponsible and endangers the integrity and success of the FHA.”

When announcing the cut, outgoing HUD Secretary Julián Castro said the administration made the decision based on solid reasoning.

“We made this decision based on the strength of the fund and the impact on borrowers,” Castro said recently. “We’re confident that this decision is the right one.”

Castro also said that the Obama administration did not expect the Trump administration to roll back the cut.

“(The premium cut) offers a good benefit to hardworking American families at a time when interest rates may well continue to go up, so I don’t believe that this is going to be scaled back,” Castro said.

But now it appears that the exact opposite is about to happen.

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