#obama mortgage plan
Obama Announces Cut in Federally Issued Mortgage Premiums
President Barack Obama announces a cut in mortgage insurance premiums for Federal Housing Administration loans Thursday in Phoenix. Ross D. Franklin/AP
President Barack Obama on Thursday announced plans to shave insurance premiums on some federally issued mortgages, potentially opening the housing sector to 250,000 new homebuyers.
“We’re going to start this week laying out some of the agenda for the next year. And here in Phoenix, I want to talk about helping more families afford their piece of the American dream, and that is owning their own home,” Obama said during a visit to Arizona. “Buying a home’s always been about more than owning a roof and four walls. It’s about investing in savings and building a family and planting roots in a community.”
Obama spoke from Phoenix’s Central High School Thursday morning as part of a weeklong economy-focused tour across the country. The president announced Federal Housing Administration mortgage insurance premiums will be lowered by half a percentage point, from 1.35 percent to 0.85 percent.
The FHA provides mortgages largely to lower- and middle-income Americans. The White House on Thursday estimated more than 800,000 homeowners stand to save money on their monthly mortgage costs from the reduced premiums, which are expected to save new borrowers an average of $900 annually.
“This action will make homeownership more affordable for over 2 million Americans in the next three years,” Housing and Urban Development Secretary Julián Castro said in a statement regarding the policy change’s longer-term implications. “By bringing our premiums down, we’re helping folks lift themselves up so they can open new doors of opportunity and strengthen their financial futures.”
The lowered rates announced Thursday are still higher than they were in the immediate aftermath of the Great Recession; mortgage insurance premiums initially were increased from 0.55 percent in 2010 to help the FHA recover from losses suffered during the housing crisis. Yet even with the reduction, the White House says the FHA expects to increase its reserves by $7 to $10 billion annually as the housing market continues to recover.
The average sale price of a U.S. home in October 2014 was $199,000, according to real estate database RealtyTrac. That’s only a $900 difference from the average sale price in October 2013, but the number of homes sold increased year-over-year by 32 percent. So while average home values in the U.S. have been relatively stagnant, the number of sales increased demonstrably.
The number of “seriously underwater” homes – in which the combined loan amount taken out on the property is at least 25 percent higher than the property’s estimated market value – also decreased over the past year. A reported 8.1 million residential properties were “seriously underwater” in the U.S. at the end of 2014’s third quarter, according to the RealtyTrac U.S. Home Equity Underwater Report. That marked the fewest number of homes categorized as such since RealtyTrac began its quarterly reports in 2012.
The U.S. homeownership rate – the proportion of owner-occupied housing to the combination of owner-occupied and rented housing units – climbed to 69.2 percent in the fourth quarter of 2004 and was as high as 68.2 percent in the second quarter of 2007 before beginning a decline. The rate most recently sat at 64.4 percent to mark its lowest level since 1995, according to the Census Bureau. It has fallen in four consecutive quarters and is more than 2 percentage points lower than it was in the fourth quarter of 2010.
Ownership rates most recently were the lowest among African-Americans and Hispanics, as well as individuals younger than 35.
Despite the potential injection of hundreds of thousands of first-time homebuyers into a slowly improving housing market, Obama’s announcement was not met with unanimous approval.
“If President Obama follows through on today’s pledge, he will be increasing the likelihood that taxpayers will have to foot the bill for yet another bailout,” Rep. Jeb Hensarling, R-Tex, said in a statement Wednesday when news broke of the president’s impending action.
But Obama said Thursday he does not plan to lead the country “down the road again of financing folks buying things they can’t afford.” The FHA’s credit score floor and required underwritings for “higher-risk borrowers” are among a host of checks that will remain in place for federally issued mortgages.
Obama will travel to Tennessee on Friday to continue a week of economy-focused appearances ahead of his Jan. 20 State of the Union Address.