One on the things that markets really don’t have is a memory.
Let the dust settle on any lunacy conceived of by an economic market and the market will eventually forget what happened and try it again. Look at the metronomically regular bank panics in the United States up until the Great Depression convinced everyone that maybe this nonsense needed to stop.
Ten years ago the US housing market melted down. It melted down because lenders financed home sales, in extremely large numbers, to people that lenders had good reason to believe were incapable of servicing the loans. Remember the term “liars loans?” The ’49 Gold Rush atmosphere around mortgages also set off a building binge. When the loan market collapsed from fraud, the building industry, from manufacturers to small players in the building trades, were destroyed.
For a year or so, a lot of people in the real estate industry have been beating their drum over a “new housing crisis.” They claim that current historically low interest rates are somehow preventing the construction of new homes and depriving people of the opportunity for homeownership. Their idea is to ease up on lending requirements in order to stoke the home-building industry. Does any of this sound familiar?
One of the first steps in that direction was a planned reduction in the rate the FHA charges for Primary Mortgage Insurance. One of the first acts by the Trump administration was to scrap that idea.
The White House on Friday suspended a recent reduction of Federal Housing Administration (FHA) annual mortgage insurance premiums made by the Obama administration.
The Housing and Urban Development Department sent out a release saying that the plan to reduce the annual premiums (MIP) by 25 basis points, to .60 from .85, for most new mortgages would not go into effect.
There was no further explanation as to why the change was made.
David Stevens, president and CEO of the Mortgage Bankers Association, said he recognized the new administration’s need to “examine the overall health of the insurance program and weigh that against the benefits of lowering mortgage insurance premiums.”
“Given that lenders have already started preparing for the MIP decrease, it is important that any new policy be implemented in a way that minimizes disruption for borrowers and lenders,” he said.
The drop in the rate was set to go into affect for any buyers with a closing/disbursement date on or after Jan. 27.
Housing advocates had applauded the Jan. 9 decision amid rising mortgage rates.
FHA’s new premium rates were projected to save FHA-insured homeowners an average of $500 this year.
Wherever there is a “gogue” just waiting to be “demo-ed” you will find Fauxcahontas, Miss High Cheekbones, herself.
— Elizabeth Warren (@SenWarren) January 20, 2017
As former RedStater Dan McLaughlin put it:
Elizabeth Warren takes a break from complaining about lending to people who couldn't afford their homes to complain re not lending to them. https://t.co/NzN73HazM6
— Dan McLaughlin (@baseballcrank) January 20, 2017
This was the right move to make. Borrowers have PMI for a reason, they haven’t put enough equity into the house to give the lender a warm fuzzy feeling about their ability to handle the mortgage. There is no logical or economic reason to repeat the disaster of 2007 for the sugar rush of rapidly expanding the housing industry.