In the latest episode of Barack Unbound, the Obama administration has announced an important executive initiative. The Federal Housing Administration (FHA) will cut the fee it charges to insure mortgages from 1.35% of the value of the mortgage to 0.85%. It will also try to encourage lenders to relax lending standards.
I suspect that this will have a larger effect than QE 2 or QE 3 (grinding an old ax here).
I am embarrassed that they did this just when I thought it was safe to get back in the risk pool. In the post immediately below, I guessed that the main reason for depressed single family home construction is reduced expectations of relative price appreciation and not the cost of mortgages (mortgage rates are extraordinarily low) or lending standards.
I did not consider the increase in FHA fees at all. As the FHA had financial troubles, they were increased by 0.8%. This is a very substantial increase, when mortgage interest rates are around 4%.
I don’t have much useful to add. Just click the link (same as the one above) and read Dina ElBoghdady’s post at the still wonderful without Ezra wonkblog.