FHA increase costs Long Island $3.8 Million Annually

A White House decision to suspend a planned rate cut for Federal Housing Administration (FHA) mortgages will cost Long Island homeowners $3.8 million in savings each year, a new study by the National Center for Suburban Studies (NCSS) at Hofstra University has found.

Christopher Niedt, NCSS Academic Director, sociology professor and the author of the report.
Christopher Niedt

Using federal home mortgage data from 2015, the NCSS determined that Long Island homeowners with FHA loans will lose an average of $797 in lost savings per year as a result of an executive order that postpones indefinitely a premium cut of 0.25% that was set to take effect on Jan. 27. Federal housing officials suspended the reduction, citing a need to study its impact on taxpayers.

The FHA, created during the Great Depression to encourage home ownership, offers mortgages that are insured by the federal government and feature more generous borrowing standards, rates and down payments. It is most often used by first-time homebuyers, and those who would not qualify for a conventional mortgage. During the economic crisis of 2007-8 and the ensuing housing bust, when foreclosure rates shot up, the FHA increased rates to shore up the program’s reserves. It began slowly rolling back those increases as the economy improved.

Christopher Niedt, NCSS Academic Director, sociology professor and the author of the report.

In the New York area, FHA-insured lending is mostly suburban lending, and this cut would have greatly benefitted Long Island households. Suspending the cut means that cash-strapped Long Island homeowners will continue to spend their money on government premiums rather than in the regional economy. This is particularly bad news for the communities that were hard-hit by the foreclosure crisis, because many families in these areas rely on the FHA.

Black and Latino borrowers will be disproportionately affected by the suspension, since they use FHA loans at higher rates than white or Asian-American borrowers.

“Almost 6 out of 10 loans obtained by Black and Latino borrowers in 2015 were FHA loans.  The higher cost of FHA loans, due to the removal of the rate cut, will disproportionately impact these same borrowers. How? By taking $1.4 million from the pockets of Black and Latino families on Long Island, every single year,” said Alberto Munera from La Fuerza Unida, a non-profit organization that provides a range of services for Spanish-speaking low- and moderate-income people in Long Island.

But as the largest group of homeowners on Long Island, white borrowers as a group lose the most total savings.

Study Finds Suburban Homeowners Hit Hard by new Executive Order
White working class suburbanites who powered President Trump to the White House are paying the biggest overall price for this action,” said NCSS Executive Dean Lawrence Levy. “People vote their pocketbooks, so it will be interesting to see if and how this action may impact the 2018 midterm elections.”

Among the other findings:

  • FHA loans accounted for 30 percent of all mortgages in Suffolk County, and 17 percent of all mortgages in Nassau County.
  • More than 58 percent of Long Island’s black and Latino borrowers rely on FHA loans, the highest of any demographic group. {The study also raised another concern: “It is possible that more affluent Black borrowers may be taking out FHA mortgages when they would be better served by conventional financing. This is a concerning pattern that call for investigation by state and federal regulators.”]
  • FHA loans account for more than half of all new mortgages in 23 Long Island communities, and four Long Island congressional districts lead the state for the amount of lost savings each year if the final premium cut is not instituted. [According to the study: “Lost savings total more than $1 million annually in three of these districts (1st, 2nd, and 5th).”]

“Despite a mortgage marketplace that has tightened for working class Americans, FHA loans continue to help creditworthy blue collar borrowers access affordable housing,” said John Taylor, president and CEO of the National Community Reinvestment Coalition (NCRC). “This action will lock out thousands of low- and moderate-income individuals in the New York metropolitan area from homeownership opportunities. I hope that this study will convince policymakers of the economic benefits of reinstating the FHA premium cut not just in New York, but throughout the country.”

Said Ruhi Maker, a senior attorney at Empire Justice Center:

The increased cost of FHA loans places the additional burden of higher housing costs on those who had the least to do with causing the great recession, but were most harmed by it. These include families who lost jobs and income, and communities with high rates of foreclosures. We urge the administration to reinstate the FHA premium reduction as soon as possible to prevent further harm to our communities.
[Long Island Housing Services’ Housing Counselors and Attorneys currently provide Foreclosure Prevention services free of charge to its clients. If you are having difficulty paying your mortgage, please call Long Island Housing Services at  631-567-5111 ext. 383Espanol ext 378.  If you have paid money to a foreclosure rescue scam operation, contact Long Island Housing Services at 631-567-5111 ext. 330. Click here for information on the Long Island Housing Services’ Foreclosure Prevention Department]