On January 7, 2015, President Barack Obama announced that the administration plans to cut Federal Housing Administration mortgage insurance premiums. This move is expected to open the housing market to roughly a quarter of a million Americans looking to buy a new home.
President Obama embarked on a week-long tour on economy focused appearances, and on January 7, he spoke in Phoenix, Arizona. He said that he wants to start a new agenda that will help more Americans purchase a home. He also mentioned that he understands that owning a home isn’t just having a roof and four walls, but investing in a future and planting roots within a community.
Obama appeared in front of the Phoenix Central High School where he announced that he plans to lower insurance premiums. The plan is to lower the FHA premiums from 1.35 percent to 0.85 percent. Most people who are getting loans through the FHA are low or middle income Americans, and the lowering of insurance premium is estimated to save the average borrower at least 900 dollars per year. It is also estimated that over 800,000 Americans will benefit from savings on monthly mortgage premium costs.
Home loans are to become more affordable
Obama’s intended move will help more than 2 million Americans benefit from affordable homes over the following three years. This statement has been made by Julian Castro, the Housing and Urban Development Secretary. He also stated that this will help Americans strengthen their finances and open new doors in the future.
Even though the announced lowering of insurance premiums will bring the rate to 0.85, this value is actually higher than it was in the aftermath of the Great Recession. In 2010, the insurance premiums were increased from 0.55 in order to help the FHA recover from the effects of the housing crisis which caused great losses. Despite the fact that insurance premiums will be lower, it is estimated that the FHA will actually save between 7 and 10 billion dollars per year and increase its reserves.
While the average sale price of a home in October 2014 was $199,000, 900 dollars more than it was in 2013, the number of homes which have been sold in this interval has actually increased by 32 percent. So despite the fact that home prices have remained relatively at the same value, the number of home purchases have increased.
Although President Obama’s move should facilitate the home buying process through the FHA and even though it will probably bring several hundreds of thousands of American first time buyers into the already improving housing market, not everyone has approved of this move. Rep. Jeb Hensarling has stated on Wednesday that if Obama is to stay true to his promise, it is possible that many taxpayers will suffer in the future due to another bailout.
Despite this reaction, President Obama has said that while he plans to make home purchases more affordable, he will do everything to prevent Americans from going down the same path where financing allows people to buy things they can’t actually afford.