In one of his first official acts following his inauguration on January 20th, President Donald Trump signed an executive order suspending the cut in the annual FHA mortgage insurance premium (MIP) announced by the Department of Housing and Urban Development (HUD) on January 9th, 2017.
The reduction in FHA mortgage insurance was the last major housing policy initiative announced by HUD under the Obama administration. Although the announced FHA mortgage insurance cuts were well received by borrowers and community housing advocates, some questioned the timing of the policy announcement. Many industry observers had speculated that Trump would reverse the cuts when he took office so his action did not come as a total surprise. The timing might have caught some people off guard; however, as few expected Trump to act on this issue within hours of being sworn in as President .
The lower annual FHA MIP rates were supposed to apply to all FHA mortgages that closed on or after January 27, 2017. Given the timing of President Trump’s executive order, no borrowers were able to benefit from the reduced FHA insurance rates.
The announced cuts reduced the ongoing FHA mortgage insurance premium by almost half for some borrowers. For mortgages with terms longer than 15 years, the new FHA MIP was supposed to range from .55% to .60% of the loan amount but returns to existing rates of .80% to 1.05% of the loan amount, depending on loan length, loan amount and loan-to-value (LTV) ratio. For mortgages with terms of 15 years or shorter, the new FHA MIP was supposed to range from .25% to .50% of the loan amount but returns to existing rates of .45% to .95% of the loan amount.
- FREEandCLEAR provides a thorough explanation of the FHA Home Loan Program including the current up-front and annual FHA MIP rates. You can also use our FHA Mortgage Qualification Calculator to calculate what size FHA loan you can afford as well as your up-front and annual FHA mortgage insurance fees
If implemented, the FHA insurance cuts could have saved borrowers hundreds of dollars a month and thousands of dollars a year. For example, for a $200,000 30 year fixed rate loan with a loan-to-value (LTV) ratio of 96.5%, the annual FHA mortgage insurance premium based on the new rate (.60% of the loan amount) would have been $1,200 or $100 per month as compared to $1,700, or $142 per month, under the current FHA mortgage insurance rate (.85% of the loan amount).
The annual FHA MIP reduction for certain loans under the FHA Streamline and Simple Refinance programs was also reversed.
The suspension of the FHA insurance cuts was positioned as a way to allow newly appointed HUD secretary Dr. Ben Carson to make his own decision on this policy matter so it is possible that we could see more changes to the FHA Mortgage Program and MIP fees in the future.
As always, FREEandCLEAR keeps you apprised of any housing policy changes and offers free tools and resources to evaluate how HUD decisions affect borrowers.