Trump administration suspends FHA insurance rate cut

January 22, 2017

 

One of the first acts of Donald Trump’s administrative after assuming the presidency Friday was to suspend a pending rate cut for mortgage insurance on FHA-backed loans.

The cut, announced by President Obama in the last days of his presidency, would have reduced insurance premiums for many borrowers by hundreds of dollars a year.

However, some Republicans worried that taxpayers would have to cover losses if those insured loans went bad and FHA didn’t have enough money in its reserves. The U.S. Treasury had to bail out the Federal Housing Administration to the tune of $1.7 billion in 2013 after the collapse of the subprime mortgage market. Some argue private insurers should play a bigger role in the market.

FHA doesn’t issue mortgages, but it does insure loans for many first-time borrowers and those with poor credit who can’t afford to put 20 percent down. The administration then collects fees and reimburses lenders in case of default.

When the Obama administration announced the rate cut, it the FHA’s finances had greatly improved since it received its 2013 bailout and that savings should be passed along to borrowers.

The California Assn. of Realtors has called for the Trump administration to quickly review the rate reduction. It said FHA-backed borrowers in California would save an average of $860 a year with the rate cut.

The suspension was set to take effect Jan. 27.

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