It’s just February but the mortgage industry has witnessed major developments under the current administration. Whether it’d be the reversal of the FHA mortgage insurance cut, the plan to overhaul a financial reform act, or the current trend of mortgage rates.These three have been major enough to warrant news coverage and merit consideration from homebuyers and refinancers contemplating their next move.
1. Mortgage Rates Increasing, Being Volatile
President Trump’s win ended the 3%-rate era as mortgage rates have been on the rise, despite a two-week respite early this year. In the week after his successful bid for the presidency, the average rate on a 30-year fixed-rate mortgage hit 4.03% and currently it stands at 4.19% (as of February 2 PMMS).
A key driver to the mortgage rate surge was the President’s promise of a 4% GDP growth. He and his team of economic advisors propose increased government spending on infrastructure and tax reforms to achieve that goal. Interestingly, the tax reform will involve limiting the mortgage interest deduction, which is enjoyed by those who buy a home.
Back to mortgage rates, experts project that they will continue to increase this year but will be volatile over uncertainty on how the President’s policies on financial regulation and tax reform will turn out.
2. FHA Mortgage Insurance Reduced Then Reversed
Previously we reported that the Federal Housing Administration announced a reduction on its annual component of its mortgage insurance premiums (MIP). The reduction will have taken effect on mortgages that closed on January 27.
But, on the first day of his office, President Trump signed an executive order putting any policies of the previous administration that have not gone effective to be put under review. This, of course, includes Obama’s parting gift of lower FHA mortgage costs.
While it doesn’t benefit existing households with FHA loans but future homebuyers and refinancers can certainly use a quarter-point reduction. Per the National Association of Realtors’ estimates, the mortgage industry would have seen 30,000 to 40,000 homebuyers who can afford FHA loans under the reduced premium scheme.
3. The Unraveling of the Dodd-Frank Act
The President recently signed an executive order that calls for modifications to the Dodd-Frank Act, also known as the Dodd-Frank Act Wall Street Reform and Consumer Protection Act. It enforces more oversight on banks to prevent taxpayer bailouts, codifies new rules on mortgages and establishes consumer protection watchdogs like the CFPB.
This regulatory oversight on banks, which led them to be more strict on loans, is what the President mainly wants to unravel. “Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year,” Gary Cohn, who serves as director of the National Economic Council, was quoted as saying in an interview with The Wall Street Journal, NPR reported.
What the Dodd-Frank Act revision comes down to is its effect on the mortgage industry. Will it be easier for a consumer to access financing for a home, car, etc?