The Real Deal New York

FHA cuts mortgage costs for certain borrowers

Trump could reverse the reduction once he takes office
January 10, 2017 09:42AM

HUD Secretary, Julian Castro (Credit: Getty Images)

The federal government is cutting mortgage insurance premiums for the first time in two years, a move that could make it easier for first-time homebuyers to borrow as they face rising interest rates.

The Federal Housing Administration is reducing the fees it charges to guarantee the mortgages it backs by a .25 percent point, bringing the annual cost for most borrowers to .60 percent of the loan balance, Bloomberg reported. According to HUD, the reduction could save new FHA-insured homeowners an average of $500 in 2017.

But first-time homebuyers — who tend to favor the government program — shouldn’t celebrate just yet. The cut may be reversed by President-elect Donald Trump TRData LogoTINY once he takes office. Republicans have traditionally opposed fee reductions, arguing that they hinder the FHA’s ability to handle mortgage defaults.

The change could also harm bond investors, since it speeds up repayment on certain securities, Bloomberg reported. Investors in Ginne Mae-backed mortgage bonds could also counter the fee cut by raising rates.

Some in the industry, however, praised the FHA’s decision.

“Dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA,” William Brown, president of the National Association of Realtors, said in a statement. [Bloomberg] — Kathryn Brenzel