Current Event Assignment #5

FHA to cut mortgage insurance premiums: White House:

Summary:

This article is about a recent move by the Federal Housing Administration and White house to reduce annual mortgage insurance premiums by .5 percentage points. (1.35 to .85) This move is thought to be due to tighter lending standards since the financial crisis a few years ago. The U.S. govermment wants to widen mortgage access. The FHA insures one-fifth of U.S. mortgages. With an FHA-backed loan, buyers can put down only 3.5% of the purchase price, making it appealing to new time home buyers. Fannie Mae and Freddie Mac have also recently lowered down payments to 3% of the property value. The White House has announced that the reduction is meant to "expand responsible lending to creditworthy borrowers." 't is predicted that in the coming future the White House will be cutting more red tape and clarifying lending standards in an effort to make mortgages both affordable and accessible to more creditworthy families. interestingly, the FHA had to draw on $1.7 billion in taxpayer funds in 2013 but since then it has returned to the black from raising the mortgage insurance premium fees. Unfortunately, the FHA's capital ratio is below the legal requirement and not expected to meet it anytime soon. This is a politically charged move with Democrats wanting to widen mortgage access to low-income and first-time home buyers and Republicans wanting to keep the government's role limited in the market. A fear of some Republicans is that the move will increase the likelihood that taxpayers will have to pay for another bailout.

Analysis:

a. This news could greatly affect he people living in the "area" that it occurred. Since that 'area" is the United States as a whole, this news could affect many citizens. Lower mortgage insurance premiums and low down payments could lead more first time home buyers and those with low income to purchase homes and properties. People will feel more confident that they can pay for their loans since the prices will be lower and they will have to put down less money at first. This could increase the happiness, at least temporarily, of many Americans and their families. This may even help to spur the economy as a whole as more people buying anything, especially large purchases such as homes, stimulates economic growth. One way it may do this is by making it easier for people to sell their homes possibly preventing foreclosures and such. However, if the FHA, Fannie Mae, Freddie Mac, or other such organizations, go into the "red" and require a bailout, the U.S. economy could slow down. Taxpayers will have to foot the bill requiring higher taxes and less money for citizens to use for their own purposes. It would also cause distrust in the federal government causing a slowing down of  mortgages and home buying possibly. Additionally, it could drive some into debt if they think they can afford a home that the realty cannot, causing them to accrue compounding interest payments and the like. So, white there is definite risk involved inthis move, it's possible beneficial effects are great.

This news might affect me as in the next ten or so years I could become a home buyer myself. White that is far out relatively and much could change, this news could be the beginning of a trend. I may find that when I try to buy a house that down payments are incredibly low and mortgage insurance premiums are low as well, which could make it easier for me to buy. Also, if my family for whatever reason decided to move in the near future, this news could make it easier for them to do so. (More affordable), This news greatly connects to what is being discussed in class, We are just beginning our credit unit in which mortgages are a part. Mortgages are currently being discussed in our class as they relate to borrowing money with interest payments. (credit) We have also been discussing how easy it is to be tricked into buying something you cannot afford. While this may not be a "trick" per say by the federal government, it could cause some people to buy houses they cannot afford. It is an example of the federal government intervening in the market to stimulate growth, a topic that has also been discussed in class. This news shows just how connected mortgages and credit are to our very lives and the society in which we live.

I chose this article because of my interest in the role the government plays in the market. t am interested to see if this move will help grown the U.S. economy and home-buying without any major implications. I think it is important for all Americans to be focused on news such as this that connects to mortgages and home-buying as that is greatly connected to our recession a few years ago. I am also interested to see more how the Republican House and Senate will react to this news in the near future.

Citation:

Dunsmuir, Lindsay. "FHA to Cut Mortgage Insurance Premiums: White House." Reuters. Thomson Reuters, 07 Jan. 2015. Web, 07 Jan. 2015. <http://www.reuters.com/articte/2015/01/07/us-usa-housing-fha-idUSKBNOKGIL120150107>.

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