Historically when a new president took office and moved into the White House there was sort of a lull. A honeymoon period if you will that, give or take, traditionally lasted 100 days.
The President during that time was given a time-honored “grace period” by the press while at the same time allowing the new occupants to acclimate.
Not only to their new surroundings but the sheer impact of being there in the first place.
Yet not this time around. President Trump and his staff have saddled up and making moves right out of the starting gate.
Obama’s FHA mortgage-fee cut
Unless you’re in the mortgage industry you probably weren’t aware that then President Obama made a surprising move just 10 days before Trump took office. The Obama administration announced on January 9th the FHA annual mortgage insurance premium, or MIP, would fall from 85 basis points of the loan amount to 60 basis points, reflecting a 25% decrease. This would equate to approximately $500 in savings for ever FHA homeowner.
MIP policy on a mortgage loan, in the event a borrower defaults on the payments. Mortgage insurance commonly referred to as Mortgage insurance premium (MIP) and private mortgage insurance (PMI). This fee is 0.85% of the loan amount on FHA Loans, the reduction would have reduced the percentage of MIP to 0.60% for FHA borrowers.
Trump administration overturns the FHA MIP reduction
On the Jan. 20, 2017, the day of the inauguration, one of the first official acts of the new administration directly affected the FHA loan program. The FHA MIP reduction scheduled for the 26th was halted and did not take effect.
The MIP fee reduction will not have a big impact on the housing market because it had not yet been implemented when Trump reversed it.
Those that supported the free reduction were disappointed by Trump’s decision. The reversal was passed with a vote of 52-47. Republications are in favor of the reversal because they’re concerned the FHA will not have enough capital to cover loan defaults. If the FHA owed more on defaulted loans than they had in reserves the responsibility would fall on taxpayers.
Consumer Financial Protection Bureau
One of the key provisions enacted by the CFPB was the Qualified Mortgage, or QM rule.
The QM rule outlined specific characteristics a conventional loan should have. If a lender approved a loan using the new QM standards the lender would be shielded from future lawsuits as a result of yet another round of loan defaults.
For example, a loan must be fully amortized and the loan term could not exceed 30 years. That meant no interest-only mortgages and no loan programs where the loan could negatively amortize. A “neg-am” loan is one where the borrowers have several payment options each month. These options allowed the loan to actually get larger instead of smaller over time.
There could be no balloon mortgages where the loan balance comes due in full after only a short time. The QM status required the lender’s requirement to verify the borrower’s ability to repay the mortgage.
Will Trump make buying a home easier?
Dodd-Frank created the Consumer Financial Protection Bureau, or CFPB as a consumer watchdog regulating banks, investment firms, mortgage companies and any entity that issued credit. The additional guidelines established by the CFPB added more overhead to an individual mortgage. Reforming the CFPB will loosen lender requirements and overlays, which will make it easier to buy a house.
The President stated in his first week in office that Congress should move to reform the CFPB and make regulatory reform a priority to “help striving Americans get the credit they need.” Vice President Pence followed up by telling Congress to dismantle the CFPB and make it a priority. The Dodd-Frank Wall Street Reform and Consumer protection Act was signed into law by President Obama in 2010. Dodd-Frank was enacted in response to the 2007-2008 housing market crash, which was the country’s largest financial crisis since the Great Depression. Financial Markets are more heavily regulated in an effort to prevent another housing crisis from happening.
Prior to 2008, according to the Mortgage Bankers Association, a loan underwriter at a mortgage company could approve on average 150 loans per month in 2005 yet after full implementation of the new CFPB rules that number dropped to 33 in 2015. That means a lender needs five more underwriters hired to meet the same sort of volume.Trump has been highly critical of Dodd-Frank calling it a “disaster” and promised to “do a big move” on it. Trump believes the regulations are excessive and make it “virtually impossible” for small business owners to get loans. By removing some of the regulations it will make it easier for American’s to qualify for a new home.
Is making it easier for American’s to obtain a home loan a bad thing?
Some financial experts say that reforming Dodd-Frank spells trouble for the housing market. “Dodd-Frank restrained the predatory behavior that was seen in the subprime mortgage market in the early 2000s. If Dodd-Frank is repealed or hamstrung, we should expect to see a return of that behavior – loans being made without consideration of whether the borrowers can pay them back; hidden costs and fees packed into loans at origination; increases in defaults and foreclosures.” says David Reiss, Law Professor at Brooklyn Law School.
Others believe that lending institutions have become over regulated and reducing the some of the regulations will help the housing market by generating a larger pool of approved buyers. Carl Redd, a mortgage industry expert. He says “Cutting red tape and freeing up capital helps the bottom line. If rates are on the move and if Trump is right about the stranglehold of regulations, the housing market should do just fine.”
There is no doubt that Trump isn’t afraid to make big moves. You can expect more major changes to happen in the near future. American’s political viewpoints will ultimately affect their decision to purchase a new home, according to Trulia. Whether or not, Trump’s impact will be good, or bad that remains to be seen. What we do know is that Donald Trump will definitely impact the housing market.
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