FHA cuts mortgage costs for certain borrowers

Trump could reverse the reduction once he takes office

HUD Secretary, Julian Castro (Credit: Getty Images)
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 [TRDataCustom] once he takes office. Republicans have traditionally opposed fee reductions, arguing that they hinder the FHA’s ability to handle mortgage defaults.

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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