The 25-basis point reduction — a basis point is 0.01 percentage point — would have made FHA mortgages more affordable just as interest rates were on the rise.
“This was a way to expand the amount of people who qualified for a loan and it has been removed,” said Craig Strent, chief executive of Rockville-based Apex Home Loans.
The reduction was scheduled to take effect on new FHA loans insured on or after Jan. 27. A buyer who this week went under contract to buy a house using an FHA loan may now find that his monthly payment has gone up. It was estimated the reduction would have saved borrowers about $500 per year.
“According to our estimates, roughly 750,000 to 850,000 home buyers will face higher costs, and 30,000 to 40,000 new home buyers will be left on the sidelines in 2017 without the cut,” William E. Brown, National Association of Realtors president, said in a statement. “We’re disappointed in the decision but will continue making the case to reinstate the cut in the months ahead.”
House Republicans objected to the reduction because it would have lowered the amount of funds FHA has available to cover mortgage defaults. House Financial Services Chairman Jeb Hensarling (R-Tex.) issued a statement earlier in the week saying, “the Obama administration’s parting gift to hardworking taxpayers is to put them at greater risk for footing the bill for another bailout.”
Castro said FHA’s reserves were healthy enough to withstand less revenue.
Republicans pressed the new administration to reverse the cut. Not long after Trump was sworn in as president, HUD sent a letter suspending the previous letter.
HUD spokesman Brian Sullivan said in an email the agency would have no further comment other than the letter.
The move seems to be more symbolic than significant.
“They didn’t have the time to study it so they rolled it back,” said Laurie Goodman, co-director of the Housing Finance Policy Center at the Urban Institute. “It wasn’t a huge impact anyway. It was a marginal change.”
Among the many ways to expand credit to borrowers, she said, “this is really, really low on my list.”
The FHA doesn’t issue mortgages. It insures them to protect lenders against defaults. FHA loans are popular with first-time home buyers because of their low down-payment requirements and credit score demands.