Trump’s first days in office halt FHA premiums, spark regulation chatter - Movement Mortgage Blog

It’s good to be back after a two-week hiatus from our Market Updates. We’ve got a lot to cover in this edition. But first…

I recently returned from a truly life-changing trip to Uganda with other Movement team members. I could fill pages with all the stories and events we experienced. While we did volunteer for several charities and ministries, tour the Movement Foundation’s Elhanan Farm property, and even helped rebuild some homes burned by wildfires, I received more than I could have possibly given.

We had the privilege of sharing time with some of the happiest, gracious people I have ever encountered. Over and over, I met both children and adults living in drastically poorer conditions than what we see here in the U.S. Yet every time, I was welcomed with smiles and well wishes. The people of Uganda are truly inspiring.

Trump’s fast start

While I was overseas, Donald J. Trump became the 45th President of the United States.

Where to begin? In the first few weeks of the Trump Administration, we experienced a number of major events that already affected or may soon affect the mortgage industry and economic markets. Since Jan. 21, Trump and his team have:

  •      Halted a planned FHA insurance premium reduction
  •      Cleared the way for new oil pipelines
  •      Pushed for relaxed enforcement of the Affordable Care Act
  •      Froze federal hiring for non-military agencies
  •      Signed executive order on immigration policy
  •      Nominated a new Supreme Court Justice

Perhaps one of the largest long-term impacts we may feel are Trump’s intended regulation rollbacks. He signed an order on Week One that for every new regulation, two additional regs must be removed. He’s pledged a 75 percent reduction in all federal regulation. While that may seem like a near impossibility, Fitch released an interesting breakdown this week of what major regulation rollbacks may entail.

Fitch analysts expect Republicans in the Senate to introduce the Financial CHOICE Bill, which would replace Dodd-Frank and end the Consumer Financial Protection Bureau, replacing it with a Consumer Financial Opportunity Commission (CFOC) tasked with consumer protection and overseen by Congressional authorities. You can read Fitch’s analysis here.

“Under the proposal, CFOC would retain many of the elements of the CFPB but would be constrained in its authority. It would subject the CFOC to appropriations and greater congressional oversight, and the mandate would be widened to include strengthening market participation and competition while also protecting consumers,” Fitch’s analysts write.

“Financial institutions, particularly non-bank financial institutions, could see an earnings benefit through lower compliance costs related to CFOC and potentially fewer fines from CFOC investigations, although this could be accompanied by weakening control frameworks relative to current standards,” the analysts concluded, according to a Housing Wire report.

What the FHA?

Hours after he became president, Trump’s team halted an eleventh-hour Obama Administration move to lower FHA insurance premiums. The move gave the mortgage industry a hiccup as thousands of borrowers expecting to close after premiums dropped suddenly were faced with paying the established rates.

As a result, FHA loan applications dropped 13 percent after Trump’s first week in office. Overall applications dipped 3.2 percent, according to the Mortgage Bankers Association as borrowers reacted to the move.

“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,” said Michael Fratantoni, chief economist for the MBA.


Meanwhile, after Trump took office interest rates ticked up to their highest level since December and continued to take the wind out of the refi market’s sails. The MBA’s most recent forecast calls for average rates to move from 4.3% in early 2017 to 4.7% by the end of the year. It also predicts overall mortgage volume to decrease to $1.57 trillion in 2017, compared to $1.89 trillion in 2016.

However, the home purchase volume is still expected to grow modestly this year, which is a good sign for purchase-centric lenders like Movement. I am optimistic that rising home values, optimism about business conditions and rising wages will keep the home purchase market steady this year.

This week’s economic readings

We received two important readings on the health of the economy in the past week.

Last Friday, the Commerce Department reported total U.S. gross domestic product increased by 1.9 percent, which is below the 2.1 percent average the economy has mustered for seven years. This number, while positive, doesn’t paint a picture of an economy gaining steam. So, while the financial markets have shot up on a wave of optimism since Trump’s election, the fundamentals really haven’t changed. It will be interesting to see if Trump’s 3 and 4 percent growth targets can be achieved this far into a seven-year cycle of economic expansion.

The Federal Reserve Open Market Committee paused any further action on interest rates at its monthly meeting this week. While the committee did add language to its statement that noted “measures of consumer and business sentiment have improved of late,” no action was taken on rates. These events underscore the current situation: optimism about deregulation but evidence of slowing growth.

“There’s been this dichotomy that’s occurred since the election between measures of sentiment and real activity. There’s been this real animal spirits story,” Mark Doms, senior economist and managing director at Nomura, told CNBC. “One of the things the Fed is going to be looking for, as well as the market, is whether these animal spirits are going to materialize in a meaningful way.”

We also received metrics on the employment situation in today’s jobs report.

Jobs data exceeds estimates

We learned this morning that the U.S. economy in January added 227,000 jobs, beating estimates of 180,000 new jobs for the first month of 2017. While the unemployment rate ticked up to 4.8 percent, this was driven mainly by more people entering the workforce, which is a positive sign.

The only disappointment in the data was a lack of wage growth. Average hourly earnings increased just 0.1 percent, well below the forecasted 0.3 percent increase. Still, wages are up about 2.5 percent since last January. This will be an important metric to watch because we want to see wages rise if inflation picks up its pace this year.

The bond market has settled into a relatively tight range with the 10-year Treasury note yielding between 2.3 and 2.5. I don’t really expect any near term major moves out of this range until we see some economic news that provides good direction on where the economy is headed.

Thanks for reading through a longer-than-usual post. It has been an eventful few weeks. I’ll continue to keep a finger on the pulse of the markets and how various forces are influencing our business. Hang on for what may be a volatile ride this year.