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Trump Just Took Away From Home Buyers Obama's Parting Gift  

Trump Just Took Away From Home Buyers Obama's Parting Gift  

Trump Just Took Away From Home Buyers Obama's Parting Gift  
The FHA is the largest mortgages insurer in the world and has insured over 34 million properties since its inception in 1934 across the US.(Flickr/Gage Skidmore)

The political motives attached to the move notwithstanding, former president Barack Obama had offered home buyers in the US a great relief when his administration had announced a reduction in the annual insurance fee charged by the Federal Housing Administration (FHA) by a quarter of a percentage point to 0.60 per cent from 0.85 per cent.  According to Bloomberg estimates, a reduction of this scale in the insurance premium would have meant a saving of $500 for homebuyers with a loan of $200,000 in the first year.  

The reduction would have come into effect on January 27 had it not been for the President Donald trump undoing the policy change. Apparently, the decision was announced earlier in January by Housing and Urban Development secretary Julian Castro in the Obama administration without consulting the Trump administration. Right after taking the oath, Trump junked the decision.

In a letter to the industry after suspending the reduction, the housing and urban department noted that “more analysis and research are deemed necessary to assess future adjustments while also considering potential market conditions in an ever-changing global economy that could impact our efforts".

Criticising the move, Senate Democratic leader Chuck Schumer said: “One hour after talking about helping working people and ending the cabal in Washington that hurts people, he signs a regulation that makes it more expensive for new homeowners to buy mortgages.”

How does it work?

It is worth mentioning here that the FHA does not issue mortgage but provides insurance cover to lenders against defaults from buyers' side. With the help of this cover, buyers can invest in properties by making only 3.5 per cent of the value as down-payment. For this, however, you should have a credit score of 580 on a scale of 300 and 800. If you have a credit score between 500 and 580, you can buy a property with 10 per cent as down-payment. This government programme is popular among the first-time buyers and low-income groups in the US.

Earlier, the Obama administration implemented several increases in the fee charges by the FHA to replenish the coffers of the body that was hit adversely by the global economic crisis of 2008. It has to be noted that the FHA is the only government body that operates on self-generated income. However, the US Treasury had to issue $1.7 billion to the body in 2013 to bail it out for the first time in 79 years.

The FHA is the largest mortgages insurer in the world and has insured over 34 million properties since its inception in 1934 across the US. If the US citizens have better access to housing today, much of the credit goes to the FHA.

Last Updated: Wed Feb 01 2017

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