President Obama is moving to slash the fees the federal government charges to guarantee mortgages, as the administration looks to boost a housing market that has lagged behind other segments of the economy since the recession.
The Federal Housing Administration will cut the fees by half a percentage point, in a move forecast to help more than 800,000 homeowners save on their monthly mortgage payments, the White House announced Wednesday.
The executive action also is expected to reduce mortgage costs enough that an additional 250,000 new homebuyers can afford monthly payments, and save holders of federally backed loans who finance at the new rates an average of $900 a year.
The FHA had charged just 0.55 percent over 30 years for the insurance premiums as recently as 2011, but increased the rate to cover losses from mortgage defaults during the recession. The rate is currently at 1.35 percent, but under the executive order will be reduced to 0.85 percent.
“This step is part of the President’s broader effort to expand responsible lending to creditworthy borrowers and increase access to sustainable rental housing for families not ready or wanting to buy a home,” a White House official said. “In the coming months the administration will be taking additional steps to cut red tape and clarify lending standards to build on the measures announced today.”
The move was praised by industry groups, which have been pressing the the Obama administration to make the move in an effort to help first-time homebuyers and, in turn, the overall economy.
National Association of Realtors President Chris Polychron said that by lowering fees the “FHA will provide greater access to homeownership for historically underserved groups."
David Stevens, head of the Mortgage Bankers Association, said the move is perfectly timed by the White House for the anticipated February start of the spring buying season.
Stevens expects the change to provide motivation to first-time homebuyers, including millenials, a key target group of housing industry — as well as provide a boost to economic growth this year.
"It's pretty significant because it's like dropping the interest rate by half-point overnight," he said. "It will create market activity."
The announcement came as the president was headed to Detroit to kick off a three-day national tour Obama is using to preview aspects of his State of the Union address.
In Detroit, the president is expected to tout the recovery of the auto industry during a visit to a Ford plant.
“The auto industry has led a resurgence of manufacturing in America,” Obama said in an interview Tuesday with The Detroit News. “The quality of the cars has gotten so much better that we are competitive — not just in SUVs — but up and down the line. The branding of American cars is back to where it should be. Michigan's unemployment rate has fallen faster than the overall unemployment rate.”
On Thursday, the president will head to Phoenix, where his new housing initiative is expected to take center stage.
HUD Secretary Julián Castro estimated that the action will make homeownership more affordable for more than 2 million people the next three years.
“Since 2009, the Obama Administration has taken bold steps to reduce risks in the mortgage market and to protect consumers,” he said.
“These efforts have made it possible to take this prudent measure while also ensuring FHA remains on a positive financial trajectory.”
Obama's final stop is Knoxville, Tenn., where he’s expected to sketch out a new legislative proposal to improve access to college for young Americans. Obama will also announce the establishment of a new manufacturing hub in the state, according to Pfeiffer.
The Obama administration has helped fund a half-dozen of the hubs, public-private partnerships that seek to bring together private companies, universities and federally backed researchers in a bid to spur job creation.
The president has asked for funding to create 45 such institutes — based on similar public-private partnerships in Germany — in previous State of the Union addresses.
Vicki Needham contributed.
— This story was updates at 2:28 p.m. and 3:48 p.m.