STEVE INSKEEP, HOST:
Today was supposed to be the day that a fee reduction was going to go into effect at the Federal Housing Administration. It would have lowered the cost of FHA loans to homeowners. That's not going to happen, at least for now, because in his very first hours in office, President Trump issued an order suspending that fee cut which had many people asking, what's up with that? NPR's Chris Arnold reports.
CHRIS ARNOLD, BYLINE: The Obama administration had authorized the fee reduction for FHA loans. Geoff McIntosh is the president of the California Association of Realtors. He is not happy that President Trump moved to suspend it.
GEOFF MCINTOSH: We were disappointed. It would have made a difference to California homebuyers of about $860 a year.
ARNOLD: So why would the new administration want to keep that money out of Americans' pockets? Well, conservatives had warned that cutting the fees for FHA borrowers, that might leave taxpayers on the hook in another housing crash. Ed Pinto is a director with the American Enterprise Institute's Center on Housing Risk.
ED PINTO: FHA insures over $1 trillion in outstanding mortgage loans.
ARNOLD: So, OK, here's how all this works. The FHA allows Americans to buy homes with as little as a 3 percent down payment. Private lenders actually make the loans and the FHA guarantees them. And the homebuyers, as part of this deal, agree to pay fees into a reserve fund that covers losses on loans that go bad. Those fees went up during the foreclosure crisis, and the Obama administration had been lowering them back down as things got back to normal. The money in that emergency fund, by the way, is also back above its legally required level, but Pinto says...
PINTO: There's been a lot of concern that the level of that fund is insufficient to really cover FHA in the event there were another serious event in terms of foreclosures.
ARNOLD: The FHA did require a bailout after the housing crash, but for the sake of comparison it was less than 1 percent of the money that the government had to use to bail out Fannie Mae and Freddie Mac, which also guarantee home loans. So other experts say that concerns like Pinto's are overblown. Chris Mayer is a housing economist at Columbia University. He says for a long time, some conservatives have been warning that the FHA is a trillion dollar time bomb that we should be really worried about.
CHRIS MAYER: We just went through the worst financial crisis since the Great Depression, and the FHA didn't take down taxpayers or the federal government in any way shape or form. You know, at some point you can't keep saying this thing's going to blow up, this thing's going to blow up.
ARNOLD: As far as the Trump administration blocking this fee cut, the optics don't seem terribly good. That is just after his inaugural address where President Trump said he wanted to help working class Americans, one of his first executive orders blocks working class homebuyers all across the country from saving money on their mortgages. Geoff McIntosh with the realtors group says...
MCINTOSH: Yes, I did find it somewhat ironic, but I can also appreciate that they wanted to make sure that it was a sound fiscal decision before they executed it.
ARNOLD: McIntosh says though he's cautiously optimistic that after the Trump administration reviews all the facts and figures that it will allow the fee cut to go through to help make homeownership a bit more affordable for Americans with FHA loans. Chris Arnold, NPR News.
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