On January 20, 2017 President Donald Trump signed an executive order suspending the FHA mortgage premium rate cut that the Obama administration had previously passed in early January 2017. We sat down with Connie Eddy of SWBC Mortgage to discuss the change and how it might impact consumers. See the full Q&A below.
Q: In layman’s terms, can you explain what the FHA mortgage premium rate cut is and what happened as a result of Donald Trump’s recent executive order suspending the cut?
CE: The recent change as a result of the executive order was more of doing away with a recent cut than it was an increase of the rate. Mortgage Insurance rates were at an annual rate of .85 previously, and they had been at this rate for about a year. The announcement a few weeks ago by the Obama administration was regarding the cut of this rate to .60 annually – decreasing the rate by .25, which was to take place on January 27th. The executive order instated by President Trump on Jan. 20 eliminated the reduction, so it will remain at .85.
Q: How will this change impact buyers?
CE: The reduction never went into effect so it should not impact buyers. Although buyers would have benefited by a reduced monthly MI (Mortgage Insurance) payment if the rate cut had taken place.
The calculation for the annual premium is as follows:
$100,000 loan amount @ MI factor of .85= $850 annually / 12 months = $70.83 monthly MI payment (current rate that will continue)
$100,000 loan amount @ MI factor of .60 = $600 annually /12 months = $50.00 monthly MI payment (proposed cut rate that has since been eliminated by executive order)
Q: Is there anything buyers need to do if they have previously qualified for an FHA-backed loan?
CE: The change was rescinded so buyers that were previously approved with the reduced rate need to speak to their lender and update their approval with the higher monthly MI amount.
Q: How will this change impact REALTORS?
CE: It may have allowed buyers to qualify for a higher purchase price due to the monthly payment savings that would have incurred had the rate cut taken place.
Q: When will this change take effect?
CE: Effective immediately.
Q: Anything else you want to share about this change?
CE: At this time, the Trump administration says the halt on the reduction is indefinite. It is our hope that the administration will reduce the rate in the future as this will allow lower payments on an FHA loan.
Comparatively, the FHA loan has been a less attractive product with the higher MI, even though the rates are lower on an FHA loan than a conventional program. With the MI rate cut, the FHA loan was to be a very competitive program offering a reduced down payment requirement of only 3.5%, lower interest rates AND the lowered MI. Although still competitive due to lower rates and reduced down payment, the higher MI does somewhat offset the benefits.
If you have any additional questions about your FHA-backed loan, contact your real estate professional or SWBC Mortgage at 615-577-5196.