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In case you haven’t heard, President Trump officially suspended the reduction in the annual FHA premium previously announced by FHA. With the stroke of a pen, Mr. Trump made one of his first official presidential acts to officially suspend the rate cut indefinitely.
This action has caused quite a stir in the housing and mortgage communities. Some say it is prudent to take a step back to further evaluate the current strength of the FHA Insurance Fund and the effects of such a reduction. Others say this would have been a benefit to first time home buyers and housing, making homes a little more affordable.
HUD’s General Deputy Assistant Secretary for Housing, Genger Charles, stated that additional review is necessary before moving forward with any such reductions. FHA and the new Administration want to take a closer look to ensure the reduction won’t put the FHA, the taxpayers and the Fund into further jeopardy from potential loan defaults.
In all fairness, the reduction should not have been announced just before the inauguration of the new President, and the installation of a new HUD Secretary. It would have been prudent to discuss the reasoning and viewed benefits with the new Administration as to have some consensus on a move before making any announcement to the public.
The announcement and suspension now puts a strain on the mortgage industry to reverse steps that had been taken to comply with the announced reduction. Lenders that had begun disclosing the lower premiums now must re-disclose the affected FHA loans with new FHA disclosures and a revised Loan Estimate, within 3 business days of the change (Friday). Lenders need to get crackin’!
If the loan is scheduled for closing, and the initial Closing Disclosure issued, the lender must determine if the change will increase the disclosed APR by more than .125%. If so, a new CD is needed and a new 3 business day waiting period for consummation.
All this and some, but not all, believe the reduction will be allowed at some future date. Many still think the FHA Fund is not strong enough to make any cuts. There is still too much risk and, although the Fund has hit the minimum required reserves at 2%, this may not be enough to withstand a major hit like the one we recently saw in 2008.
For now, no FHA rate cuts. But people still need, and want, housing, and FHA financing is still a viable option for home financing. So, while the politicians do their things let’s get out and do ours; providing home financing to those who need it.
Lend responsibly, my friends.
