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Ben Carson takes HUD Lead: What This Means for Real Estate

In the final hours of the Obama Administration, former-Secretary of the Department of Housing and Urban Development (HUD) announced a final domestic economic policy to reduce FHA insurance premiums. The announcement came as a surprise for both President Trump’s Cabinet and the public.

Last Friday, in one of the Administration’s first acts, President Trump suspended the proposed plan to cut to annual mortgage insurance premiums to .25%. Cuts were expected to go into effect January 27th.

Former HUD Secretary Julian Castro will be replaced by Dr. Ben Carson, former Republican presidential candidate and retired neurosurgeon. Dr. Carson won approval from the Senate committee tasked with auditing his credentials and past experience.

Foresight and Qualifications

Critical of HUD in the past, Dr. Carson has flip-flopped on his willingness to lead the $47B department, which oversees urban planning, housing initiatives, and is responsible for significant influence over the housing market (excluding interest rates).

In a hearing on January 12th, Dr. Carson confirmed he was qualified to lead HUD, although he has in the past vacillated whether or not he would accept then President-elect Trump’s nomination. In addition, Dr. Carson has no experience working in the public sector nor does he possess the qualities to oversee urban planning and affordable housing initiatives according to critics.

Conflicts of Interest and Reactions

“One hour after talking about helping working people and ending the cabal in Washington that hurts people, [President Trump] signs a regulation that makes it more expensive for new homeowners to buy mortgages,” U.S. Senate Minority Leader Chuck Schumer in a statement.

Despite Dr. Carson’s lack of experience, many have found his impoverished upbringing from Detroit to a world-class neurosurgeon as a positive sign for change.

According to the New York Times and Reuters, Dr. Carson said he would ensure and prevent any conflicts of interest between HUD and President Trump’s private real estate interests.

Scrapped Plans and Housing Market Speculation

Mortgages backed by the FHA have grown significantly in the past few years. In addition, lenders not backed by major banking institutions have scaled considerably in the FHA-supported market.

FHA insurance is popular with a growing sect of home buyers. FHA-backed borrowers are also highly attractive to lenders who know their loans are guaranteed even if the borrower defaults. Had the Obama Administration’s proposed .25% FHA premium cut went into effect on January 27th, a new segment of home buyers could have entered the market.

A .25% decrease would have saved a home buyer around $500 a year in insurance on a $200,000 mortgage. Now that rates will remain at .85%, critics argue this new segment of home buyers will be discouraged from entering the market.

According to NAR President William E. Brown, the scrapped plans marginalize around 40,000 potential buyers in 2017.

Read more about the FHA Premium Cuts on The Chime Blog