Homebuyers may have to wait a little longer for relief from federal loan program fees. With the change in presidential administration, a scheduled reduction of fees for one popular program have been delayed indefinitely.
Fees from the Federal Housing Administration, a part of the Department of Housing and Urban Development, were scheduled to be reduced from about 0.85 percent to 0.60 percent per year in late February. However, the Trump administration indefinitely suspended these reductions in late January.
The program, which has been in existence for since the 1930s, helps provide affordable mortgages for low- and moderate-income and first-time homebuyers by insuring the loan. In the event of a foreclosure, FHA will pay the mortgage lender a percentage of the mortgage value through the fees charged to all loan recipients.
Based on a $200,000 loan, the reductions would have saved homebuyers about $500 annually, Bloomberg reported.
The reduction in fees was expected to come as the agency recovered from the recession and housing bust of 2008 and 2009. Amid widespread foreclosures due to economic uncertainty, the agency received a $1.7 billion bailout in 2013 and raised the fees it charges to insure the loans. In 2015, the program’s reserves rose back within its legally-required threshold, setting the stage for the fees to be reduced, Bloomberg reported.
The delays in reducing these fees back to their pre-recession levels comes as conservatives fear what could happen to the program if another recession were to happen, NPR reported.
Vanya Griffith-Mayes, a branch manager for Starkey Mortgage, said the announcement of the reduction was unusual in that it based it on the closing date of the loan and not the case number, which was common practice. Griffith-Mayes said she thinks that the reductions, which were announced in early January, were too early, as the HUD secretary has yet to be confirmed.
“It was a surprise to us when this was announced, but not a surprised when it was rolled back,” Griffith-Mayes said.
Griffith-Mayers said the loans issued locally are usually for about $85,000. While some larger loans exist, they are in the minority, she said. Based on this, she said monthly fees would have only dropped by about $22 a month.
“That could make or break some people, but the effect is minimal,” she said.
However for others, the stay on the reduction represents another barrier for some to homeownership. Austin College Business Administration Professor and Social Sciences Dean David Griffith — no relation to Griffith-Mayers — said he used the program to purchase his first home.
“FHA is a critical player in the housing market because it insures private lenders against default,” he said. “That allows them to make loans to people who are younger and poorer, so they can live the American dream of homeownership.”
Based on an average home price of $150,000 in Grayson County, the professor said homebuyers would pay about $375 a year in FHA fees under the current structure. Over the lifetime of the loan, this equates to about $9,000 in fees. He noted he was uncertain how many homebuyers locally use the program, but said he expected it to be similar to the statewide rate of 25 percent.
“Trump’s decision to raise FHA mortgage insurance rates is motivated more by making Wall Street banks richer than by helping people in places like Sherman and Grayson County buy houses,” the professor said.
For her part, Griffith-Mayes said she does expect some reduction of fees to occur in the future. As FHA competes with other federal loan programs, these changes will be made to make the program more competitive, she said.