Attorneys At Law

Attorneys practicing in and around the Chicagoland area. Experienced in the practice areas of Real Estate Law, Mortgage Foreclosure Defense Litigation, Social Security Disability, Business Law, & Estate Law.

Attorneys At Law - Attorneys practicing in and around the Chicagoland area. Experienced in the practice areas of Real Estate Law, Mortgage Foreclosure Defense Litigation, Social Security Disability, Business Law, & Estate Law.

President Trump Suspends Mortgage Fee Rate Cuts

On his first day in office, President Donald Trump signed an executive order reversing a recently passed Obama administration policy that reduced the fee rate for Federal Housing Administration backed loans.

What is the change?

The administration canceled a reduction in the Federal Housing Administration’s annual fee for most borrowers.

The cut passed during the final days of the Obama administration would have reduced the annual premium for someone borrowing $200,000 by $500 in the first year.

When the fee rate policy change was announced by Obama’s Housing and Urban Development secretary Julian Castro in January, it was criticized by Donald Trump and Republicans.

What are the fees for?

The premiums fund the Mutual Mortgage Insurance Fund, which bails out lenders if borrowers default on their mortgages. Republicans argued the fee reductions put taxpayers at risk by lowering the funds the FHA has to deal with mortgage defaults.

FHA mortgage loan fees were raised during the housing recession to cover program losses. The Obama policy cutting them would have returned them to almost to the level they were before the housing bubble burst in 2008.

A letter from HUD to lenders and the real estate industry announced they would “suspend indefinitely” the rate reduction, stating “more analysis and research are deemed necessary to assess future adjustments while also considering potential market conditions in an ever-changing global economy that could impact our efforts.”

What was the response to the change?

The responses to the Trump administration policy were mixed.

Senate minority leader Chuck Schumer denounced the move, while the nominee for Secretary of HUD Ben Carson criticized the new policy when it was implemented by the outgoing administration.

Some housing industry groups approved of the change, saying it would increase home buying by offsetting recent rises in mortgage rates.

Other critics included the President of the National Community Reinvestment Coalition, John Taylor, who asked through a spokesman: “Exactly how does raising the cost of buying a home help average people?”

President of the National Association of Realtors, William E. Brown, said the fee rate cuts would have allowed more people to qualify for a mortgage because it would allow them to meet the debt-to-income ratio required for borrowing money.

The mortgage rate fee hikes were originally implemented during the Obama administration when FHA was under severe stress because of the financial crisis. In 2013 the agency was bailed out by the for $1.7 billion after a huge wave of mortgage defaults.

What does it mean?

In their letter to the real estate industry, HUD stated that “FHA is committed to ensuring its mortgage insurance programs remains viable and effective in the long term for all parties involved, especially our taxpayers.”

With this recent policy change, potential home buyers and the real estate industry will need to wait and see what the effects on the housing market will be.


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The Law Offices of Lora Fausett P.C. provide real estate law attorney services including short sales and deeds in lieuloan modifications and workouts, and buying & selling assistance.

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Sources:

Trump Reverses Obama’s Mortgage Fee Cuts on First Day – Bloomberg

Trump’s first executive action: Cancel Obama’s mortgage premium cuts – USA Today

Trump’s Mortgage Fee Cut Reversal: What it Really Means for House-Hunters – Fox Business

HUD Official Website

Mortgage Rates Surging After Presidential Election

mortgage rates going up after presidential electionThe average rate of a 30-year-fixed rate mortgage has jumped to 3.94%, up from 3.57% last week. In the past two weeks, the rate has increased 40 basis points.

But that’s still pretty low. This time last year, a 30-year mortgage was 3.97%.

The higher rate means the monthly payment on a $250,000 home loan with a 20% down payment would be $948 — $42 more than it would have been last week.

The initial bump in mortgage rates last week was more of a knee-jerk reaction to the election results from the market, explained Keith Gumbinger, vice president of HSH.com.

But now concerns over President-elect Donald Trump’s proposed spending and tax cuts, are fueling volatility in the bond market.

“The prospect for faster growth comes with faster inflation, and even though not a stitch of policy has been written, markets are preparing for what is likely to come in the months ahead,” said Gumbinger.

Treasury notes serve as a benchmark for various types of credit, including mortgages and car loans.

The 10-year Treasury note closed at 1.85% on Election Day. A week later, it stood at 2.24%. Higher yields make borrowing more expensive.

“There is a flight to safety of assets outside the U.S.,” said Erin Lantz, vice president of mortgages for Zillow Group.

Tight inventory levels have pushed up housing prices in many markets throughout the country. But low interest rates have helped buyers stomach the higher prices.

While mortgage rates increased 10%, they are still close to historic lows.

“It is always important to keep perspective: If you look back, rates are only as bad as when we began 2016,” noted Gumbinger.

But the prospect of higher rates is starting to set in. Mortgage applications dropped 9.2% last week, according to The Mortgage Bankers Association. The Refinance Index took an 11% tumble to the lowest level since March.

The Federal Reserve is set to meet in December and is expected to raise the federal funds rate, which is the short-term interest rate it uses to lend money to banks.

While an increase is heavily anticipated, Gumbinger said he will be paying attention to the central bank’s language.

“It’s more about what they say about future policy. If the message is a soothing one, markets won’t react very much. If it’s a more hawkish tone, then you will see markets reposition for the next interest rate increase.”

Original story appeared on CNN.Money