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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jun 22, 2012

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Homeowners are being aided—and more importantly courted—by the Obama Administration in the pivotal months leading up to the Presidential election. By strategically using the Federal Housing Administration (FHA) to lessen the financial burden that mortgage borrowers are under, the Obama Administration has made a decisive move in rallying favor with voters for the upcoming election.

The vast majority of homeowners and mortgage loan borrowers are middle class citizens that have a respectable amount of political awareness. With the nation still mired in the ongoing recession, homeowners and borrowers of mortgages are eager to take any opportunity they can to save money and pay less on their monthly mortgage bills. Resolving to curry favor with them, the Obama Administration imposed FHA price cuts on mortgage insurance premiums, which resulted in a wide-sweeping impact on the lives of many Americans.

Mortgage insurance premiums are the amounts that borrowers pay, usually on a monthly basis, for their mortgage insurance policy. Lenders are protected by mortgage insurance premiums in the event that a borrower defaults.

FHA Changes

The FHA price cuts on mortgage insurance premiums took effect on June 11. This prompted a refinancing rush by the millions of borrowers whose mortgages are insured by the FHA. Applications for government mortgage refinance loans reached an all-time-peak in mid June 2012.

“Borrowers seized the opportunity to lower their mortgage rates without increasing their FHA premiums,” said MBA vice president of research Michael Fratantoni of the Mortgage Bankers Associations (MBA).

If 3.4 million borrowers end up saving money, they may have to thank the Obama Administration for its FHA changes. From a strategic point of view the Obama Administration is likely hoping that these borrowers will remember the President’s influence on the FHA when borrowers are in voting booths or filling out ballots.

The price cut savings came in the form of two reduced fees. Under the new initiative, the fee known as the upfront mortgage insurance premium dropped from 1 percent to 0.01 percent of the loan’s balance. The second fee—the annual mortgage insurance premium—was cut by roughly half to 0.55 percent of the balance from 1.15 percent.

How Will Borrowers Benefit?

It is estimated that 3.4 million borrowers who have FHA mortgage refinance loans that were originated on or before May 31, 2009 pay over 5 percent annual interest.

That means there is a potential 3.4 million borrowers who, should they opt to take the Obama Administration’s FHA price cuts, will likely see 5 percent of annual interest shaved off their mortgages.

In March, the White House declared that lowering mortgage fees could help 2 million to 3 million mortgage refinance loans borrowers save an average of about $1,000 each year. This projected figure could be even higher since it does not include the savings generated by paying a lower interest rate, which, for the past two months, have been resting at historic low levels. If 2 million to 3 million borrowers save money, that could very easily equate to 2 million to 3 million votes for the incumbent president come November.

“It’s like another tax cut that will put more money into people’s pockets,” said President Obama at a news conference in March where he announced the plans adding that he did not need Congressional authorization to make these changes.

Without Congressional oversight there was little opportunity for Republicans to hinder the FHA changes. Additionally, lessening monthly mortgage payments at a time when most Americans are having financial trouble—or at least financial worry—is somewhat difficult to cast in a negative light by President Obama’s political opponents.

Despite the impact of these changes, this isn’t the first time that the FHA has acted on the housing market. In the past, the Obama Administration cut the cost of obtaining mortgage refinance loans through the creation of the non-traditional streamline program.

Refinancing through the FHA streamlined process allows most qualified FHA-insured borrowers to save on average about $3,000 a year or $250 each month according to estimates by U.S. housing officials.

November Approaches

The mortgage refinance loans rush could not have come at a more politically sensitive time.

The presidential election looms on the horizon as the nation continues its economic struggle. By aiding Americans in times of need the FHA has done a great service to helping out many households who may have been barely able to keep their head above water.

The surge in applicants for mortgage refinance loans can only confirm the fact that the country is still facing tough times, or, at the very least, that people still actively looking to save money wherever they can. This lowering of rates and hopefully the lessening of a financial burden may be an electoral boon to incumbent President Obama.

It remains to be seen if relieved and thankful borrowers will turn out to vote for his re-election. Other factors, such as the unemployment rate, may speak louder than any FHA policy change could ever hope to.

For those interested in pursuing a mortgage refinance loan, obtaining a mortgage quote can be done in as little as a few minutes with new internet tools.