By: Reed MacMillan
The Department of Housing and Urban Development has several mission statements, including “Maintain and expand homeownership, rental housing and healthcare opportunities.” In the last quarter of 2016, home ownership increased slightly from 63.5% to 63.70%. The all time high of 69.20% was reached fin the second quarter of 2004, according to data provided by the Trading Economics website. In February of 2017, sales of new single family homes rose 6.1% for a seasonally adjusted rate of 592,000, whereas sales of previously owned homes dropped 3%. This may seem like a largely positive trend in the direction of home ownership. I do not disagree. Yet, if you look at the United States MBA Mortgage data, you will find that in March, both applications for new mortgages and refinancing fell 1.6 and 4.2% respectively.
CNBC’s Diana Olik (@DianaOlick) reported this story with the following headline, ” Trump’s first housing move tanks mortgage applications 3.2%.” To view the story click on the image below, which highlights the FHA fee cut and impact of $480/year to a buyer with a $190K mortgage. Volume was was 18 percent lower than the same week one year ago.
The report further details that there was a 13 percent drop in FHA applications, which they attribute to the Trump administration reversing a cut in the FHA’s annual mortgage insurance premium, just hours after the inauguration. Expressed succinctly by Mother Jones, “FHA loans enable homebuyers—often those with lower incomes and who have fewer assets or bad credit—to bypass conventional lenders who would likely deny them loans by taking out a mortgage that’s insured by the federal government. (Trump’s First Move as President: Screwing Over Homeowners, January 20, 2017)
To be clear, just hours after the inauguration, President Trump signed an executive order that reversed a cut in the FHA’s annual mortgage insurance, that would have decreased monthly payments for thousands of new, lower-income borrowers. Presidential executive orders require no congressional approval to pass or overturn. Earlier this year, CNBC’s Diana Olik (@DianaOlick) reported that Obama signed this final Executive Order after after assessing that the FHA insurance fund, which had gained $44 million in reserves, could afford to pass on some of the savings to working families.
(CNBC, Obama lowers borrowing rates, claims Trump won’t reverse). Many Republicans in Congress were not happy about this, suggesting that
The mostly rural, middle-American areas that helped propel Donald Trump to victory in the presidential election, are also the areas of the country that have seen little growth in home ownership according to Laura Kusito’s (@LauraKusisto) Wall Street Journal’s article, Housing Gains Highlight Economic Divide. In this article, she talks about how these regions, with home prices between $100,000 -$150,000 on average, have been especially hard hit after the economic crisis of 2008, when the requirements for obtaining a mortgage became more stringent.
The National Association of Realtors article Hidden Demographics of First Time Home Buyers reveals that the percent of first-time home buyers varies by region of the country. In the Mountain region of Montana, Idaho, Wyoming, Nevada, Utah, Arizona, Colorado, and New Mexico, all red states, first-time home buyers were only 21 percent of the total number of buyers in 2015, the lowest of any region. First-time home buyers made up 43 percent in the Middle Atlantic in New York, Pennsylvania, and New Jersey; and 42 percent in New England.
In assessing the impact of these actions on our national economy, and its economic stability, I think that you could make a case that it is risky to ease requirements for lower income and first-time home buyers. Yet, this runs counter to the mission of HUD to maintain and expand home ownership. It also runs counter to the narrative of our current President who promised the economically hardest hit new opportunities. For a President who promised to get the economy going again, it is a bit hard to understand Trump’s decision to undo the Obama-era rate reduction. It qualifies as a “Robbing Hood” because it has little effect on wealthier mortgage holders, and harms those with low incomes, middling credit scores or who have less than a 20% down payment on their homes. Haley Sweetland Edward’s article in Time, How Donald Trump Just Raised Many Mortgage Bills (January 2017), provides pros and cons for reversing the Executive Order. Whatever the pros are, they must be balanced against the reality of 40,000 Americans potentially losing their chance for a new home, a potential reality captured by Elizabeth Warren’s Tweet on January 20th:
“.@POTUS suspended a planned cut in FHA mortgage insurance premiums,” she tweeted on Inauguration Day, “which @nardotrealtor says will cost 40k families a shot at a new home.”
- FHA Loans for a First-Time Home Buyer
- Home Values Rebound, But Not for Everyone
- Hidden Demographics of First Time Home Buyers