On Friday afternoon, just hours after swearing in, President Donald Trump suspended a Federal Housing Authority (FHA) mortgage premium rate cut issued by former President Barack Obama earlier in the month. The quarter-point cut would have taken effect on January 27.
An FHA loan, with its low down payment and less stringent credit score requirements, offers first-time and low-income homebuyers the opportunity to get a foot in the proverbial door. Aimed at countering rising interest rates following the November elections, the Obama administration’s mortgage insurance premium (MIP) cut would have made it possible for a greater number of buyers to be eligible for credit based on their debt-to-income ratios. For even more buyers, it may have made a monthly mortgage payment more affordable.
The FHA doesn’t issue home loans. Rather, it insures loans against default, and the Trump administration’s position is that the FHA fund wasn’t healthy enough to support the decrease in the first place, a stance countered by previous HUD secretary Julian Castro. Both the relative health of the fund and the potential impact the suspension will have on Dallas Fort-Worth homebuyers seems to be a matter of opinion. We asked some local industry experts to share theirs.
Lisa Peters of Caliber Home Loans put pen to paper and gave us some real-life numbers to illustrate the impact the now-canceled MIP break would have had on DFW buyers. Based on a sales price of $275,000 and a 3.5 percent down payment, she estimated the reduced premium payments would have dropped from $186.56 to $132.69 per month, saving a borrower $53.87 per month or $646.44 annually. For first-time or limited-income buyers, that would have made a considerable difference.
“Where it gets really expensive is that mortgage insurance on an FHA loan is for the life of the loan. It never goes away,” Peters said. “It affects the psyche going in.”
Not everyone in the local lending industry sees reason to be concerned. Tim Hamlin, a loan officer with Network Funding, LP, is among those taking a more optimistic view of the move. “Had it been in effect for longer, I think you’d see a greater impact. At this point, could it affect a buyer’s ability to qualify? Possibly. But not by very much.”
Again, not everyone is in agreement on the potential fallout. The National Association of Realtors released a statement Friday expressing disappointment in the HUD decision.
Hava Johnston, a Realtor with eXp Realty, echoes those sentiments. She estimates 70 percent of her clients to be first-time homebuyers – those most likely to be hurt by the change. “I’m worried about it,” she said. “Ultimately, the Dallas market is going to remain strong enough, but on a personal level, it’s going to be discouraging. It changed the debt-to-income ratio just enough that there will be plenty of people – the school teacher, the recent graduate, the single mom – who thought they were going to become homeowners this year and now aren’t.”
