How low-income home buyers in MN could be hit by one of Trump's first decisions

Low-income, first-time home buyers could have saved hundreds of dollars a year.
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It may have got lost amid the bluster about inauguration crowds and "alternative facts" over the weekend, but the Trump administration has taken a decision that will impact low-income and first-time home buyers in Minnesota.

On Jan. 9, the Obama Administration signed an order that would have reduced the amount buyers pay the government in Federal Housing Administration (FHA) insurance premiums. There are a lot of little details, but bottom line: it would have saved someone with a $200,000 mortgage around $500 a year.

This new rate was due to come on Jan. 27. But on Friday, an hour after taking office, Trump signed an executive order indefinitely suspending the rate cut from the Department of Housing and Urban Development (HUD) program.

It means Minnesotans hoping to buy an FHA insurance-backed home after Jan. 27 won't get the lower rates they had been in line for.

How does it work and who will this affect in MN?

The FHA helps people with low incomes or poor credit ratings to get on the property ladder by effectively backing their mortgage. It sells insurance to homeowners that allows them to qualify for mortgages – which require as little as 3.5 percent down, and come with lower closing costs.

If the buyer defaults on their mortgage, the insurance kicks in and the government bails out the lender for the cost of the mortgage (from a fund built up from the premiums).

In Minnesota, almost 200,000 households have mortgages that are backed by FHA insurance, according to government data.

Any Minnesotans who planned to buy a home via the FHA after Jan. 27 would have qualified for this lower rate, saving individuals and families (who are likely to be on tight budgets) hundreds of dollars.

Also, some of the 200,000 Minnesotans already on FHA-backed mortgages might have been able to access the lower rate by re-financing their mortgage (if it made financial sense for them to do so).

Arguments for canceling the rate cut

The RealDeal reports that FHA cuts have been criticized by Republicans in the past. They've argued that it doesn't build up enough of a buffer protecting the government in the event a lot of people default on their mortgages.

Their concern is well-founded. In 2013, the FHA got a taxpayer bailout of $1.7 billion – the first in its 80-plus year history – after a high number of defaults on mortgages during the financial crisis led to a deficit of $16.3 billion, as The Hill reported.

Since then though, the FHA's reserve fund has grown considerably, prompting the Obama administration's decision to cut rates.

Nonetheless, new HUD head Dr. Ben Carson said at his congressional confirmation hearing that the 0.25 percent insurance rate cut would result in $3-$5 billion less each year going into the reserve fund, Politico reports.

In a letter to the real estate industry after the cut was confirmed, the Department of Housing and Urban Development said more research was needed to assess whether any future mortgage rate cuts should happen. The agency said it's committed to ensuring its programs "remain viable and effective in the long term."

Arguments for keeping the rate cut

The decision to scrap the cut left Senate Democratic Leader Chuck Schumer fuming, accusing Trump of abandoning America's poor shortly after saying in his inauguration speech they would not be "forgotten."

"One hour after talking about helping working people and ending the cabal in Washington that hurts people, he signs a regulation that makes it more expensive for new homeowners to buy mortgages," he said.

John Taylor, of the National Community Reinvestment Coalition, told Bloomberg the action is "out of alignment" with Trump's words about "having the government work for the people."

"Exactly how does raising the cost of buying a home help average people?" he said.

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