By Peter White
NASHVILLE, TN — During his first hour in office, America’s new president stopped a cost cut for millions of homebuyers who Barack Obama tried to help.
Obama ordered a .25 percent cut in mortgage insurance premiums to start last week, but now FHA mortgage insurance costs stay at about $72 per month on a $100,000 FHA loan.
“It’s not going to stop home ownership because people were buying homes with FHA a few years ago and people have not stopped buying now,” says Joan Fleming, residential mortgage manager of Citizens Bank in Nashville. “But when you’re looking to make mortgages more affordable, you look to reward those buyers with a lower insurance premium.”
Homebuyers deserve the break, Fleming says. As a whole, they’re better at making payments. Foreclosures are down.
“The housing market is stable enough now to reduce the mortgage insurance rate,” she says. “Lowering insurance rates is one of those things, as a whole, we worked for. Now it’s been taken away. It’s disappointing…”
The National Association of Realtors reported last week the number of properties listed for sale sank to its lowest level since 1999. A shortage of homes on the market pushed prices higher and rising interest rates increase the cost of mortgages. Payments on a house costing $232,200 increased by about $900 from a year ago.
“When it comes to many markets … particularly the affordable housing market, [the president’s] cancelation of the reduction of the mortgage insurance premiums is going to have a huge impact on the already inflated and barely affordable Nashville housing market as well as all surrounding counties,” says Page Turner, a real estate broker who was the Tennessee Housing Development Agency’s 2016 Agent of the Year.
Rents are skyrocketing in Nashville so buying a home makes more sense than renting if you can afford it, Turner says. Hardworking Nashvillians are being priced out of the market due to the rising property values as well as “the astronomical percentage that MIP (mortgage insurance premium) adds to a mortgage note.”
Canceling the cut hurts lower income communities by making it harder to buy a home, Turner said. “A reduction in MIP allows for more homes to be purchased and puts many people back in the … market. The cancelation of this reduction means the buyer is forced to purchase a home for a lot less, which, in our market [for] properties under $150,000, means 90 percent of approved buyers will not be able to purchase at all … we don’t have many homes available in that price range.”
When the housing market tanked, the 2008 recession was caused by Wall Street chicanery in real estate investments secured by bad home loans. Mortgage insurance is a safety net for mortgage lenders against defaults, so the large number of foreclosed homes that remained unsold during the recession is why mortgage insurance premium rates increased so much.
Since then, “The inventory of HUD properties has gone down significantly,” Fleming said. “More people are buying and fewer people are falling into default.”
A few years ago, Davidson County had about 400 properties in foreclosure, she said. Now it’s about 75. Lowering the rate as Obama planned was not a risky move. It made sense and it would have helped average people.
Turner says a lower MIP would permit more home purchases and return people to the market. Cancellation of the rate reduction has the opposite effect. It takes people out of the market who cannot afford to buy or who cannot find a home they can afford.
“The inventory has decreased. We’re doing better, and we deserve a lower premium,” Fleming said.
The higher cost of paying off a home mortgage is bad news for working families, but it’s great for real estate investors who can afford higher premiums, or who don’t need insurance by paying cash.