The Federal Department of Housing and Urban Development suspended a recent FHA mortgage insurance rate cut just an hour after Trump took office on Friday.
Mortgage insurance is required for all FHA-backed loans, which are popular with first-time home buyers and borrowers with minimal funds for the down-payment. The Federal Housing Administration, which became a part of HUD in 1965, does not issue loans directly. Rather, FHA insures the mortgages issued by various lenders, and collects premiums from the borrower to pay claims to lenders if the borrower defaults. Borrowers can qualify for an FHA-backed mortgage with down payments as small as 3.5% and a credit score as low as 580.
On January 9, 2017, it was announced that the premium rates for FHA mortgage insurance would be reduced effective January 27th. President Obama’s administration noted that FHA’s Mutual Mortgage Insurance Fund’s capital reserve ratio had exceeded requirements for the second year in a row.
“With sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” former HUD Secretary Julian Castro said when announcing the cut.
The January 9th memo said “FHA has determined that the appropriate balance of its statutory operational goals now requires a reduction of the rate of annual MIP.” It was estimated that borrowers would have saved an average of $500 per year. Now, according to the announcement on Friday, HUD officials believe more analysis is needed.