In one of his very first functional moves as president, Donald Trump signed an administrative order Friday that will result in a hike to many first-time homeowners’ mortgage bills.
Donald Trump, who claimed a democratic mantle in his first speech as a president, signed the administrative order drawing back an Obama-era policy less than an hour after leaving the inaugural stage.
The order will have the instantaneous effect of increasing the amount that most non-wealthy homeowners must contribute to the Federal Housing Authority’s insurance program. Beginning Jan. 27, most debtors will now have to pony up six-tenths of a percent of their mortgage each month, up a quarter of a percentage point from last year. Americans with $200,000 mortgages will pay roughly $500 more in 2017 than they did in 2016, according to the Federal Housing Authority.
Trump’s decision to undo the Obama-era rate drop, thus resulting in an uptick on debtors’ bills, will have very little effect on wealthier mortgage holders since the program only applies to those with low incomes, middling credit scores or who have less than a 20% down payment on their homes. (Wealthier debtors generally do not fit the program’s criteria.)
The Obama administration’s Housing and Urban Development Secretary, Julian Castro, reintroduced the rate reduction just a few days ago on the grounds that first-time homeowners needed help to access the market at a time when mortgage rates were rising.
Congressional Republicans, including incoming HUD Secretary Ben Carson, opposed that decision. They concerned that, by reducing the amount that homeowners are requested to pay each month, the Federal Housing Authority’s insurance program would collect less cash. The Federal Housing Authority uses its cash reserves to guarantee banks when high-risk debtors default on their mortgages. Without large reserves, taxpayers could be on the hook to bail out the banks. The Federal Housing Authority required a $1.7 billion bailout in 2013 when its funds dried up.
By allowing homeowners to contribute less to the Federal Housing Authority fund, the Obama Administration was putting taxpayers “at greater risk for footing the bill for another bailout,” House Financial Services Chair Jeb Hensarling of Texas stated in a statement Jan. 9.
Previous HUD Secretary Castro claimed the insurance program’s funds are robust enough now to forego increased contributions.
The Federal Housing Authority mortgage insurance program was planned in part as an incentive program for banks: If banks offered mortgages to first-time and lower-income home buyers, or those with less-than-stellar credit, then the Federal Housing Authority would maintain an insurance program to bail out the banks if and when that higher risk population evaded.
The program helps debtors who can only make comparatively small down payments—of 3.5% or more—or have credit scores in the mid-500s.
Housing industry groups are split over whether Trump’s administrative order removing the Obama-era rate reduction will effect home buying. It’s a comparatively small increase, but some claim that lining the FHA’s coffers could allow the federal program to offer its services to more borrowers—thus helping more low- and middle-income buyers access credit. Others claimed that delivering low- and middle-income borrowers an even higher mortgage bill was not in service of the “populist revolution” Trump promised.