• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Obama Cuts FHA Fees, Taxpayer Bailout Looms

    President Obama has announced that he ordered the Federal Housing Administration (FHA) to cut in half the fee paid by homeowners whose mortgages the agency guarantees.

    The good news is that this reduction will save those homeowners who are able to refinance their homes about $1,000 annually. The Administration says that the reduced payments will help about 3 million homeowners refinance their homes.

    The bad news is that this fee cut would also make a taxpayer bailout of FHA more likely. The agency’s latest annual report shows that it has about $2.6 billion in capital to pay for possible losses in its $1.1 trillion mortgage portfolio. This equals about $1 for every $400 of insured mortgages—far below the legally required $1 of capital for every $50 of insured mortgages.

    The report notes that in the past year alone, the agency saw its capital drop by $2.1 billion, and there is a 50 percent likelihood that the agency will need as much as a $43 billion bailout as soon as next year.

    Since it was created in 1934, the FHA has focused on assisting moderate- and low-income home buyers by providing them with insured mortgages and allowing them to make down payments as low as 3.5 percent of the purchase price. However, since other forms of housing finance dried up since 2007, the FHA has moved from insuring about 5 percent of new mortgages to about one-third of all new mortgages.

    Although the agency’s leadership confidently predicts that a recovering housing market will keep it from needing a taxpayer bailout, other experts make a convincing case that the agency is already underestimating the amount of risk in its portfolio, making a bailout all but certain. Today’s action to reduce the agency’s income guarantees the need for tax dollars to recapitalize the agency.

    This new announcement differs from yet another housing plan that was contained in the annual State of the Union message. That proposal would have also substantially damaged the FHA’s finances. This is yet another of many attempts by the Obama Administration to assist “underwater” homeowners to refinance their mortgages. All of the previous efforts have helped far fewer people than promised, and this one is likely to be no different.

    Like past efforts, this version applies only to certain homeowners. In this case, the fee reduction will apply to refinanced FHA-insured loans that were first made on or before May 31, 2009. For those borrowers, the fee reduction will reduce their mortgage payments, but it is very unlikely to substantially increase the number who can refinance. As with past plans, far fewer homeowners than the Administration predicts will either qualify for refinancing or be able to find a lender willing to make the new loan.

    The President also announced that servicemen and women whose houses had been wrongly foreclosed after 2006 will receive about $115,000 in compensation plus any home equity they might have. It appears that over 4,500 active-duty military personnel had their homes foreclosed, despite the Servicemembers Civil Relief Act, which is supposed to protect them while they are on active duty.

    In addition, servicemen and women who were improperly refused a refinancing to a lower interest rate or had to sell their home at a loss when reassigned will receive some level of compensation. In all such cases, the money that they will receive will be paid as part of a recent agreement between federal and state government officials and major mortgage servicers. While the agreement was announced last month, final documentation has still not been released, and details such as this compensation plan are only being gradually released.

    Posted in Featured [slideshow_deploy]

    5 Responses to Obama Cuts FHA Fees, Taxpayer Bailout Looms

    1. Bobbie says:

      Obama created a prodigal American government by overstepping his bounds! What kind of people has America become that would want a man governing them who doesn't respect his own boundaries? Really people who vote for this man of deception, what happened to your self respect?

    2. Slick says:

      If you can't force taxes upon the wealthy, cut costs to government programs, making them candidates for required bailouts!!! The "Rich 1%" will pay MORE one way or the other. And guess what, folks! We will, too!

    3. Diane Winston says:

      Perhaps I don't understand how government works. Is the Executive branch supposed to do things like this or the Legislative?

    4. Bobbie says:

      this is where rules aren't applied equally. people sign a contract and abide by it. misunderstandings are worked out between those involved. the president steps in to protect his preferential while the rest of us are challenged by his force through his abuse of authority. all this mess was manufactured within the control of unconstitutional government. people have to be held equally accountable to their signed contracts that effect society.

    5. Allan B says:

      Regarding the Date criteria for being eligible for this program … it is incorrect in this article.
      It has NOTHING to do with "when" the loan was taken out. It has to do with the date that the FHA "endorsed your loan for FHA insurance with the lender. This (as we sadly found out) can take months from the date of closing. So (like us) if you closed shortly before may 31st, 2009, it DOES NOT mean you will still qualify for this new low MIP refinance program. Our loan closed May 1st, 2009, but Guild Mortgage Company in San Diego, CA took 120 days to get it endorsed by the FHA. Hows that for service !!! So we were informed today that we will not qualify as the FHA endorsed the loan after the May 31st cut-off date.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.