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What does Trump's pause on FHA fee cuts mean for buyers?

A planned reduction in FHA mortgage insurance premiums was suspended by the Trump administration hours after the new president was sworn into office Jan. 20, 2017.
2/1/2017 10:37:49 AM

A planned reduction in Federal Housing Administration mortgage insurance premiums was suspended by the Trump administration hours after the new president was sworn into office Jan. 20, 2017.

The price cut was announced less than two weeks prior to President Donald Trump's inauguration, according to the National Association of Realtors. The plan was to reduce annual mortgage insurance premiums from 0.85% to 0.6%.

"Every time we cut the cost of mortgage insurance it means more borrowers meet the debt-to-income ratio required to purchase a home," William E. Brown, president of the NAR and a California real estate agent, said in a statement. "It follows that dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA. That puts more money in the fund to protect taxpayers, and it puts more families in homes so they can live out the American dream."

The rate cut was intended to go into effect Jan. 27, according to CBS News.

What is FHA mortgage insurance?

Homebuyers are expected to pay a certain percentage of a home's value when they take out a residential mortgage. This reduces the amount of money needed to be covered by the lender. It also shows that you can be relied on to pay off the loan.

Mortgages backed by the Federal Housing Administration allow for relatively small down payments. Depending on your circumstances, you may be required to put just 3% down. Borrowers who pay less are required to purchase mortgage insurance to protect the lender in the event that the homebuyer defaults on the loan.

Who would the cut have affected?

According to the Mortgage Bankers Association, FHA mortgages comprised 13.6% of mortgage applications for the week ending Jan. 20. Laurie Goodman, co-director of the Housing Finance Policy Center at the Urban Institute, told CBS News that many FHA mortgages are for low-income, minority and first-time buyers.

"FHA mortgages comprised 13.6% of mortgage applications."

Between 750,000 and 850,000 homebuyers would have had their mortgage payments lowered in 2017 had the cut moved forward as proposed, Ken Fears, the manager of regional economics and housing finance policy at the NAR, wrote in a blog post. Additionally, 30,000 to 40,000 people who find that homeownership isn't financially feasible for them would have had the opportunity to pursue a home purchase under the fee reduction.

"Some people will actually get priced out of the market; for others this will be more of a headache," Fears told CBS. "For those who will be priced out of the market, it's a big deal."

What will happen next?

CBS noted that Trump and his administration didn't completely nix the proposed cut. Rather, they put a hold on it until further notice. Ben Carson, Trump's pick for the Secretary of Housing and Urban Development, promised to fully review the insurance cuts, HousingWire reported.

"I was surprised to see something like this done on the way out," Carson said, referring to Obama's decision to push for the cuts in the last week of his presidency, according to HousingWire.

In the meantime, FHA mortgage insurance rates will remain at 0.85%. Should Carson and Trump decide to move forward with the cuts, FHA buyers will certainly benefit.

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