Newspaper article The Christian Science Monitor

Obama Cutting Mortgage Fees for FHA Borrowers: Good News for Housing Market?

Newspaper article The Christian Science Monitor

Obama Cutting Mortgage Fees for FHA Borrowers: Good News for Housing Market?

Article excerpt

The Obama administration is reducing mortgage-insurance fees that promises to make home loans more accessible to first-time home buyers - a move that could boost the housing market but with some potential risks to US taxpayers.

Insurance premiums will drop for new Federal Housing Administration loans, cutting the average FHA borrower's mortgage payments by about $900 a year, the White House says.

At the margins, the lower-cost loans could help more Millennials enter the housing market. And by extension, that could prompt builders to boost home construction modestly as well. The change also might prompt some borrowers to refinance into new FHA loans so they can reap the lower mortgage costs.

FHA loans currently account for about 15 percent of new mortgages, a sizable chunk that's heavy on low-income households and first-time buyers. The insurance premiums cover the cost of loans that go bad, and the administration says the FHA program will remain financially sound.

President Obama touted the shift in a speech Thursday in Phoenix - a city that saw some of the best of an epic housing boom a decade ago and the worst of a housing bust that followed.

"Over time, this is going to potentially have an impact over millions of families all across the country," Mr. Obama said. "It should help further accelerate growth in the housing market."

A White House fact sheet framed the change as part of broader efforts to ensure that creditworthy borrowers have access to loans.

But the fact sheet avoided an "ownership for all" tone, adding that Obama's policy is also to "increase access to sustainable rental housing for families not ready or wanting to buy a home."

Some critics of the change, however, say Obama's latest move runs the risk of destabilizing the housing market again and putting taxpayers on the hook.

"It was just two years ago that taxpayers had to bail out the FHA to the tune of $1.7 billion," Jeb Hensarling, the Republican who chairs the House Financial Services Committee, said in a statement released Wednesday. "The American people want an end to the destructive cycle of boom, bust and bailout that poor decisions in Washington produce."

Similarly, finance experts Charles Calomiris and Stephen Haber argue that easy-credit policies are unstable for both the households who are enticed to borrow and for the financial system as a whole. They note that the Obama administration also has recently lowered underwriting standards for other government-chartered home loan programs (those backed by Fannie Mae and Freddie Mac).

Some Fannie Mae or Freddie Mac loan guarantees now will be available to borrowers who make down payments as low as 3 percent of the home's purchase prices. For FHA-insured loans, down payments can be as little as 3.5 percent of the purchase price. …

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