After several months of consideration, it was reported in mid-September 2017 that President Trump had nominated Brian Montgomery to head the Federal Housing Administration or FHA. Many people in the home finance industries hailed the appointment as good for FHA mortgage-lenders, home buyers and the US generally.
According to Mortgage Bankers Association CEO David Stevens, the organization supports Montgomery’s appointment because his previous experience in the role will help him to improve the availability of affordable mortgage loans in the US. Montgomery previously served in the position under President George W. Bush.
Stevens noted that MBA applauded the appointment, because they believe that Montgomery will help to improve the FHA. They also think that he can help the agency to better serve its mission to provide affordable housing for all Americans, especially to those with credit problems and lower to moderate incomes.
Possible Plans for FHA Under Montgomery
To understand where Montgomery may lead the FHA, it is worthwhile to examine what he did in his earlier tenure at the agency. His primary focus at FHA under the Bush administration was to create and implement programs that would modernize FHA. That is still in process at Federal Housing Administration. For example, some of the earlier changes made to FHA under Montgomery were to increase FHA-loan limits for various parts of the country, update how down payments could be paid, and also add a premium structure that is risk based.
He also made strong efforts to provide more home loans to under-served communities. One of these efforts was to provide African Americans with more education about the FHA home buying process so that more of them could buy their first homes. Since the Great Depression, the U.S. government has been assisting home-ownership with flexible FHA first time loan programs.
One of the issues that Montgomery will likely tackle first in 2017 is regarding the suspension of the proposed mortgage insurance rate cut. Ben Carson, the secretary of HUD, stated that he was surprised when the cut was made by the Trump administration. He has said he would work with Montgomery and other financial experts at the agency to examine the policy.
It also is worthwhile to examine Montgomery’s own words on FHA-related matters. In November 2016, Montgomery told Politico in an article that the Trump administration should make policies that restore housing to its traditional place as an economic growth engine in the US economy. He noted that the administration should pursue housing policies that make it easier for all lower income Americans who qualify to buy their first home.
Possible FHA Reverse Mortgage Changes Coming, And More
In late August 2017, it was reported that the Trump administration is planning to put tighter limits on reverse mortgages and may raise mortgage insurance premiums. These are proposed changes that Montgomery likely would oversee.
HUD stated in August that the Trump administration thinks that changes to the FHA reverse mortgage program are needed because it will put the program on a better financial footing. FHA programs are backed in the end by the US taxpayer.
Carson stated that the FHA reverse mortgage program has seen losses in recent years, so changes are needed to better shield taxpayers from undue risk.
The modifications to the FHA home equity conversion program would not apply to those with existing FHA-liens. But it would affect those who take out new FHA home loan programs. It is estimated that 650,000 borrowers have reverse mortgages through FHA currently.
Most of the new borrowers would have to pay a bigger mortgage insurance premium upfront. But they would pay lower ones each year of the loan. This would reduce the risk to taxpayers if the person lived longer than predicted.
Currently, borrowers pay 2% of the amount of the value of the home upfront and .5% each year over the life of the loan. Most borrowers currently pay .5% upfront and 1.25% annually. People who borrow more than 60% of the amount they can borrow already pay 2.5% annually, so their premiums will drop.
Overall, these changes mean that most seniors will not be able to borrow as much cash in an FHA reverse mortgage. The typical borrower will only be able to borrow 58% of the value of the home, but the amounts will vary based upon the age of the person and rates.
Without these changes to the program, experts say that FHA will be putting a too high of a burden on its reserve fund.
More About FHA
Even with the potential changes to FHA backed lending under Montgomery and Trump, the FHA program remains a great deal for many lower income borrowers. Instead of waiting until you have a credit score above 680, many renters will be able to get approved for FHA financing. This allows them to own a home sooner, as long as they can afford it.
Another big plus of FHA finance products is the minimum 3.5% down payment, and the minimum credit score for the program is only 500. Debt to income ratios also are flexible. Generally, qualifying for an FHA mortgages is possible for many low credit borrowers as long as they can prove they have the documented income to pay the mortgage.
References: Trump Picks Brian Montgomery to Lead FHA. (n.d.). Retrieved from https://www.housingwire.com/articles/41290-trump-picks-brian-montgomery-to-lead-fha and Elizabeth Rose http://www.elizabethroseblogs.com/