Day One Action: Trump Suspends FHA Premium Reduction; Move Makes Perfect Sense

Donald Trump just made a day one announcement: FHA Premium Cut Officially Reversed; Mortgagee Letter Already Out.

The newly installed Trump Administration has indefinitely suspended a scheduled reduction in the annual premium for Federal Housing Administration (FHA) insurance. A 25-basis point reduction in that premium was announced by then Housing and Urban Development (HUD) Secretary Julian Castro on January 9, scheduled to go into effect on January 27.

Mortgagee Letter 2017-07 was issued about an hour after Donald Trump took the oath of office as President, counteracting the earlier Mortgagee Letter 2017-01.

Move Makes Perfect Sense

Trump’s action makes perfect sense. FHA loans are “government guaranteed”. That of course means taxpayers are on the hook for defaults.

On January 9, House Financial Services Committee Chairman Jeb Hensarling stated Obama ‘Parting Gift’ Puts Taxpayers at Risk of Another FHA Bailout.

Hensarling is correct.

Given the FHA approves loans at lower credit scores than the private market, FHA loans ought to reflect that risk and have a higher rate than the private market.

Better yet, government ought not be involved in housing at all. The FHA is best shut down.

Mike “Mish” Shedlock