Trump blocks cut in FHA mortgage insurance premium

Jan. 24--PROVIDENCE -- One of the Trump administration's first actions last Friday was the suspension of a previously announced 0.25 percentage point rate cut in the Federal Housing Administration's annual mortgage insurance premium. The planned cut, scheduled to become effective Jan. 27, had been projected to save new FHA-insured homeowners an average of $500 this year.

HUD had said on Jan. 9 that the reduction "is expected to lower the cost of housing for the approximately 1 million households who are expected to purchase a home or refinance their mortgages using FHA-insured financing in the coming year."

"Approximately 74 percent of the mortgages originated by Rhode Island Housing in 2016 used an FHA mortgage," said Barbara Fields, executive director of Rhode Island Housing. "Our average FHA borrower has an FHA loan of approximately $178,500 -- which means they are paying about $1,500 per year for mortgage insurance. Therefore, the proposed rate cut would have saved our future FHA borrowers almost $450 annually [per household]."

After paying an upfront insurance fee equal to 1.75 percent of the loan, many borrowers getting FHA-backed loans will pay 0.85 percent of their loan amount for premiums each year. The Obama administration had planned to drop that rate to 0.60 percent. (The annual rates vary according to loan size, length of term and loan-to-value ratios.)

The FHA is a part of the U.S. Department of Housing and Urban Development, and it offers mortgage insurance, most often to first-time buyers and low-income individuals. An estimated 16 percent of mortgages in the U.S. are FHA-insured. The mortgage insurance is designed to protect lenders against defaults.

According to HUD's website, 26,251 single-family houses in Rhode Island, and 15,632 multifamily units, had FHA-insured mortgages in 2016. These mortgage holders were not going to be affected, according to HUD.

On. Jan. 9, former HUD Secretary Julián Castro said the rate cut would help consumers facing higher credit costs due to rising mortgage interest rates.

"After four straight years of growth and with sufficient reserves on hand to meet future claims, it's time for FHA to pass along some modest savings to working families," Castro said in the Jan. 9 announcement. Since 2010, FHA had raised annual premiums 150 percent, "which helped to restore capital reserves" in the wake of the housing crisis, "but significantly increased the cost of credit to qualified borrowers," HUD added on Jan. 9. "Today's step restores the annual premium to close to its pre-housing-crisis level."

The Jan. 20 notice from HUD said the rate cut "has been suspended indefinitely." It was signed by Genger Charles, general deputy assistant secretary for Housing.

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