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Home Loan Demand Softens with HUD Reversal

Home loan demand market is changing due to the HUD reversal recently. This last week’s plunge in mortgage applications was at least partially triggered by a large drop in government-insured loans. Overall home loan demand or applications for FHA loans dove 13 percent last week, after the Trump administration’s first housing policy move. The Department of Housing and Urban Development suspended the reduction in Federal Housing Administration mortgage insurance premiums set to take effect Jan. 27.

The quarter-percentage point reduction in premiums would have decreased monthly payments for thousands of new, low-income borrowers. The plan to reduce premiums was first announced on Jan. 9, just days before the Obama administration left office. FHA home loan demand and applications spiked immediately upon the announcement.

Lenders say many of those applications have since been withdrawn now that the premium reduction has, in the words of the FHA, “been suspended indefinitely.”

Ben Carson, Trump’s nominee for secretary of HUD, has said he would like to further examine the premium cuts and the fiscal health of the FHA insurance fund. He says it’s important to ensure the premium cut would not come at the cost of increasing taxpayer risk.

These events caused mortgage applications and home loan demand to fall last week, says Michael Fratantoni, chief economist for the MBA.

“Following the decision to suspend a proposed decrease in the FHA mortgage insurance premium, FHA refinance applications dropped more than 25 percent, while FHA purchase applications fell almost 6 percent,” says Fratantoni.

Total home loan demand from the application volume—which includes applications for refinancing and home purchases—dropped 3.2 percent on a seasonally adjusted basis from the previous week, the Mortgage Bankers Association reported Wednesday. Volume is now 18 percent lower than the same week a year ago.

Broken out, applications for refinancing fell 1 percent for the week and are now about 32 percent below year-ago levels, MBA reports. Applications for home purchases dropped 6 percent last week, but remain 2 percent higher than this time last year.

“We do expect that home sales will grow this year relative to 2016, although lack of inventory remains a constraint in many markets,” Fratantoni says.

Last week also marked the first increase in mortgage rates for 2017. The average 30-year fixed-rate mortgage rose to 4.39 percent, the highest level since December, MBA reported.

Regardless of the home loan demand changes, have you considered mortgage refinancing? Contact our San Ramon mortgage lender to discuss your current home loan and see if there is a better loan the fits your need.