Friday, January 20, 2017

What did Donald Trump do today?

In the very first official act of his presidency, he signed an executive order that raised the cost of mortgage insurance by about $500 per household per year.

The Federal Housing Administration guarantees loans for millions of low- and middle-income American households, allowing home ownership by those with low credit scores or who cannot afford a 20% down payment. Mortgage insurance is required for all FHA loans, at rates set by the government. The Obama administration had recently taken steps to lower that rate, which in turn would have saved homeowners money.

In his inaugural address today, about an hour before signing the order, Trump said that for too long, "Washington flourished – but the people did not share in its wealth." The FHA is a government entity and will retain the surplus funds generated by the restoration of the rate increase.

Since the rate increase will make FHA loans more expensive, it is expected to decrease demand for them. Treasury Secretary-designate and former Goldman Sachs partner Steven Mnuchin (along with other Goldman Sachs alums in Trump's administration) have forcefully advocated for eliminating government support of home ownership in favor of private lending.

Why is this a bad thing?

  • If a president wants to be seen as an economic populist, it's probably a bad idea to raise government fees on low-income households at the behest of the banking industry.