Obama’s Shameful Political Ploy Regarding the FHA PMI Reduction

Obama set a number of bombs in his last week in office with the numerous 12th hour executive orders.  Obama in his last days was working full time all the time to undermine the first month of Trump’s administration.

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While there should be an amendment to the Constitution to prevent a president from ramming through any significant legislation for a period of time before the inauguration of the next president.

Obama just set the order to come in effect after the inauguration signing the bill on the 9th, and knowing FHA MIP has just been in the black and profitable for 1 year, also Obama was well aware of the MMI Fund Actuarial Review coming up where by law the fund must be at a 2.0% threshold.

Obama  set the MI reduction to into effect a week after the inauguration, you bet your bottom dollar this was a political F U to Trump and Carson and put them in a no-win situation. This is only one of 1,000 Executive Orders Obama signed in the last weeks, it is definitely political, and it is intentional.

Not to mention it was the Obama Administration who increased the MI on FHA loans in 2013, but the media was mostly silent then.

Trump has frozen all of Obama’s 12th hour orders to be allowed time for further review.

Congressional Republicans had largely opposed the cut. House Financial Services Chair Jeb Hensarling issued a statement saying, “the Obama administration’s parting gift to hardworking taxpayers is to put them at greater risk for footing the bill for another bailout.”

What the media is not telling you is that there is a Congressional required 2.0% threshold that any administration must adhere to. FHA mortgage insurance fund was negative for several years, the fund has just recently turned the corner, having just got into the black for only a year, according to the U.S. Department of Housing and Urban Development’s (HUD) annual report to Congress.

IE: The Law requires and Congress had mandated that FHA keep in reserve 2% of all outstanding loans, Obama’s order to lower the MIP may make it difficult for the Trump administration to stay in compliance with the law, Obama tied their hands for political purposes, using programs like FHA to push the liberal agenda,  a shameful act of Obama indeed!

The Cranston-Gonzalez National Affordable Housing Act (NAHA), enacted in 1990, mandated that FHA’s MMI Fund maintain a capital ratio of 2.00 percent starting from October 1, 2000. As defined by NAHA, the definition of the capital ratio is the ratio of the Fund’s capital or economic net worth to its unamortized insurance-in-force (IIF). NAHA also established the requirement for the MMI fund to undergo an annual independent actuarial review

Less government is a Trump promise and one goal is to get the private sector back in the lending business. Right now the majority of funded loans are government backed with almost no private sector funded loans. The private market wants to get back into the business of lending and Trump may help that happen.

Trump said his plan is to bring the private mortgage market back. I can’t imagine he wants nearly 100% of mortgages insured by the government, that does not mean the MIP rates may still drop, they are suspending to review the long term consequences and to make sure the fund stays solvent. Trump may even allow MIP to be dropped once a borrower gets 78% equity, right now MIP does not drop off an FHA loan once you have more than 20% equity.

In Trumps recent speech at the National Association of Home Builders’ 2016 Midyear Board of Directors Meeting in Miami, Florida, Trump said, in particular, there is no group regulated harder than the housing industry. Trump said these regulations kill not just the small businesses but jobs in general. Trump shared that he plans to eliminate these regulations and instead implement a method of creating jobs without regulation.

Likewise, in an interview with Reuters in May, Trump said he plans to overhaul the controversial Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed in 2010 in response to the crisis.

“Dodd-Frank has made it impossible for bankers to function,” said Trump. “It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop.”

According to  HUD,  FHA’s MMI makes up very little of a typical payment and, consequently, does not greatly affect the affordability of a mortgage. For instance, lowering the upfront mortgage insurance (MI) to 1.25% saves approximately $4 monthly, the media uproar over what amounts to one cup of coffee at Starbucks is not worth the media attacks on the suspension of Obama’s last hour executive orders.

The decision to reduce premiums at the FHA should ride solely on its ability to strike a balance between ensuring we have a strong fund and its ability to increase the number of families that can obtain home-ownership. This is a delicate balance – and one that cannot be taken lightly. Every bit Trump can do to keep HUD solvent so they can keep home-ownership affordable as it is critical to the stabilization of our economy and our communities.

While Obama shamelessly choose to use a the FHA program as a political play on Trump, Trump will take a more cautious look at the program to make sure this is to the best interest of the program.

After review if a reduction in premiums will grow the economy, then it is likely that this administration will be for it. After all the Trump administration thinks like a business and will want to grow the economy.

The imminent proposal to reduce premiums will be placed on hold pending a new regime in Washington under the direction of a new HUD director Ben Carson. Regardless of the new director, Republican leadership might hesitate to further subsidize housing and keep costs higher, with the goal of encouraging the private sector to participate at a higher level than is currently the case.

Democrats encouraging overextended and credit-impaired people to get mortgages, or the right for anyone to buy a home is one of the things that got this country into trouble in 2007-09.

The question is how many more of these type of landmines did Obama set for Trump in the coming months?

 

 

 

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