Trump Blocks Last Minute Obama FHA Action
On the way out the door, the Obama administration announced that the Federal Housing Authority (FHA) would cut the rate borrowers get on their mortgage insurance premiums for federally backed loans. Merely hours after President Trump’s inauguration the FHA stated an indefinite halt on Obama’s last minute rate decrease. Borrowers will continue to pay .85% of their loan as an insurance premium. Obama would’ve lowered that rate to .60%.
The Obama administration justified the cut by citing FHA’s “sufficient reserves on hand” in case the loans go sour. However, this does not justify putting taxpayers on the hook, especially given government’s track record in failed housing market intervention. It’s also important to note that lowering insurance premiums has the unintended consequence of increasing housing prices for all Americans.
The FHA is part of the Department of Housing and Urban Development (HUD) and was created back in the Great Depression era to expand homeownership rates–which it largely fails to do. Overseeing mortgage insurance programs, the FHA covers lenders who provide loans to high risk borrowers, such as low-income or first time homebuyers. While this sounds nice, the focus on federal homeownership goals rather than sound underwriting policy helped fuel the housing bubble leading up to the financial crisis of 2007-08 and cost taxpayers $1.7 billion.
Chairman of the House Financial Services Committee Jeb Hensarling (R-TX) put it this way: “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.”
The Obama administration’s attempt to expand the role of FHA in the mortgage industry only further incentivizes dependence on the federal government for homeownership. Trump’s move to keep premium rates at current levels moves in the right direction, away from dependence on government backed loans that destabilize the housing market. When the government sets arbitrary standards, artificially raising prices, a market correction is bound to occur. The FHA has failed to increase homeownership rates and continues risky practices at taxpayer expense. It’s better to get rid of this driving force of market instability.