MReport March 2017

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TH E M R EP O RT | 57 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT FHA Rate Cut: What Would It Have Meant To Lenders? The impact on lenders will be "limited," according to one expert, while NAR says the rate cut would have brought 30,000 to 40,000 more buyers into the market. E xperts remain divided on the merit of the postponed cut to the FHA's mortgage insurance premiums, with some believing the cut would have eased burdens on low- income homeowners, while others say it would have put American taxpayers at risk of paying for yet another bank bailout. FHA officials announced in - definite suspension of the planned cut in January via mortgagee let- ter, shortly after the inauguration of President Donald Trump. FHA sells mortgage insur- ance to banks to protect against defaults. It allows first-time bor- rowers to make a down payment as low as 3.8 percent with a credit score of 580. The planned cut would have lowered the monthly premium cost by $41.70 for a $200,000 loan, according to The cut would have saved approxi - mately $500 a year for the average borrower. Daryl Jones, Director of the na- tional firm Cornerstone Advisors, said the effect of the rate cut suspension will be more keenly felt by borrowers than lenders. "If the discounts had already been in effect for some time and were being repealed then I think we would have a much bigger issue," Jones said. "However, since most borrowers are likely not aware of it anyway, the tangible impact to the lenders themselves should be limited." Sarah Edelman, Director of Housing Policy at the Center for American Progress, said reversing the FHA's cut to mortgage insur - ance premiums makes buying a home more difficult for the aver- age American. "With mortgage interest rates already on the rise, reversing the FHA's move to cut insurance premiums in fact puts the dream of homeownership farther out of reach for millions of hardworking Americans," Edelman said. "This decision effectively takes $500 out of the pocketbooks of families that were planning to buy a home in 2017. This is not the way to build a strong economy." William E. Brown, President of the National Association of Realtors, also released a statement expressing his dismay. "According to our estimates, roughly 750,000 to 850,000 home - buyers will face higher costs, and 30,000 to 40,000 new homebuy- ers will be left on the sidelines in 2017 without the cut," Brown said. "We're disappointed in the decision but will continue making the case to reinstate the cut in the months ahead." The FHA is required to main - tain a capital reserve ratio of at least 2 percent. At the end of the last fiscal year, that ratio was 2.32 percent. It took a beating after the 2008 financial crisis, requir- ing a $1.7 billion bailout from the U.S. Treasury in 2013 following a wave of defaults, according to Bloomberg. Fee increases in the years since helped replenish the FHA's financial reserves.

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