President Barack Obama announced Thursday he is taking action to save typical first-time home-buyers $900 a year by reducing the cost of federal mortgage insurance.
“It could be a full month’s payment that they’re saving, and that could make all the difference for a family that is owning its first home,” Obama said. “And over time, this is going to potentially have an impact over millions of families all across the country.”
The policy reduces mortgage insurance premiums for loans insured by the Federal Housing Administration (FHA) from 1.35 percent to 0.85 percent, which will save first-time home-buyers and existing homeowners who refinance into an FHA-insured loan hundreds of dollars a year.
The move angered some Republicans, who think the limited housing market recovery does not warrant looser federal mortgage standards. “It was just two years ago that taxpayers had to bail out the FHA to the tune of $1.7 billion, and just two months ago an audit revealed that FHA is still in violation of federal law because it does not maintain sufficient capital reserves,” Rep. Jeb Hensarling, House Financial Services Committee chairman said in a statement.
The mortgage insurance premium has historically been around 0.55 percent, but was more than doubled after the recession to shore up the FHA. (RELATED: Foreclosure Expert: New Policy To Offer Cheaper Mortgages Economically Dangerous)
“The American people want an end to the destructive cycle of boom, bust and bailout that poor decisions in Washington produce,” Hensarling added. “If President Obama follows through on today’s pledge, he will be increasing the likelihood that taxpayers will have to foot the bill for yet another bailout.”
In a White House statement explaining his decision, Obama said his tough enforcement of past abuses and new consumer protections have made lending more responsible, and cited low foreclosure levels and rising home values as evidence the housing market is gaining ground. (RELATED: Long Forgotten Foreclosure Debt Haunting Thousands of Americans)
More than 800,000 borrowers are expected to take advantage of the lower rates this year, and a quarter of a million people will now be able to purchase a home in the next three years, a statement from the White House said.
Obama delivered the remarks at an Arizona housing development that has received nearly $2 million in federal funding under the 2009 stimulus bill. The once privately owned development consisted of 25 vacant lots after the recession, but with the federal assistance and the help of a non-profit it now houses more than 30 homeowners.
Obama praised the program. “A family of four that maybe makes $40,000 or $60,000 a year has a chance to buy a beautiful home in a terrific neighborhood,” he said. “The market is stabilizing.”
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