As I write this, we are starting day two of the Trump administration. We wrote of Trump’s HUD secretary nominee, Dr. Ben Carson a little while back. And back then, we didn’t know much. We didn’t know what Dr. Carson thought about a lot of what HUD does. During his confirmation hearing, Dr. Carson said he was in favor of canceling the planned mortgage insurance fee reduction scheduled for late January. Day one of the Trump administration, this opinion became a policy when Trump signed an executive order officially canceling the mortgage insurance fee reduction.
What the mortgage insurance fee reduction means for some homeowners
According the National Association of Realtors, 750,000 to 850,000 homeowners may be impacted by this new policy prescription.
You may recall that after the election in November 2016, the Federal Reserve began moving the interest rates up after many years of zero and near-zero levels. Perhaps as a result of this move, former President Obama ordered mortgage insurance fees lowered. The net effect to homeowners between the interest rate increase and the mortgage insurance rate deduction would therefore be close to a zero impact.
Especially relevant is the unavoidable conclusion that homeowners will see an increase in their lending costs. According to the FHA, a borrower with a loan amount of $200,000 will, by some estimates, payout $500 per year relative to what they would have paid had the reduction taken effect.
What the mortgage insurance fee reduction means to commercial multifamily
While this fee is not directly applicable to the commercial multifamily loans, we may see some consequences of this action in the apartment space.
Because home loan interest rates are increasing and there appears to be no relief from mortgage insurance fees, potential and existing homeowners may find themselves in a bind. As a result, homeowners may decide the cost of home ownership is intolerable.
This in tolerance may lead some to get out of owning altogether. This bodes well for the commercial multifamily owner. Fewer people turning to home ownership results in higher numbers of folks renting.
Additionally, those that might have been working toward buying a home down the line, may now reconsider. Facing increases loan interest rates and now no relief to the mortgage insurance fees, potential homeowners may be left behind.
While canceling the mortgage insurance fees reduction doesn’t seem like much on the face of it, it just might be the final straw. Potential homeowners face stiffer lending criteria, larger down payment requirements, higher loan interest rates and now no relief to some mortgage insurance fees. These circumstances may conspire to push these would-be homeowners back into the renter pool. Commercial multifamily owners will welcome all of them with open arms.