Obama Uses Phoenix’s Lagging Housing Market for Lending

President Barack Obama today toured one of the hardest-hit U.S. housing markets to plug the economic themes he’ll use in his State of the Union address, including government action to help more people buy homes.

The White House announced the Federal Housing Administration is cutting mortgage insurance premiums on loans used primarily by lower-income and first-time home buyers, a move by Obama to try to boost a lagging sector of the economy. He highlighted the change Thursday in Phoenix, the biggest city in a state where the housing market hasn’t rebounded as quickly as in other parts of the U.S.

“Buying a home has always been about more than a roof and four walls,” Obama said at Central High School in Phoenix. “Over the next three years, these new policies will give hundreds of thousands of families the opportunity to own a home.”

The speech was the second of three Obama is making this week to preview his Jan. 20 State of the Union address and to talk about accelerating U.S. economic growth. On Feb. 2, he’ll release the annual federal budget blueprint that also will set the stage for the final two years of his term, as he deals with a Republican-controlled Congress.

The annual fees the FHA charges to guarantee mortgages will be cut by 0.5 percentage point, to 0.85 percent of the loan balance, Julian Castro, secretary of the Department of Housing and Urban Development, said yesterday during a conference call with reporters.

Borrowers’ Savings

Under the new premium structure, FHA estimates that 2 million borrowers will be able to save an average of $900 annually over the next three years if they purchase or refinance homes.

Obama said the U.S. housing market has emerged from a collapse that occurred “when responsibility gave way to recklessness” on the part of some home buyers and lenders.

“We do want to make sure that the housing market is strong and that responsible homeowners can get a good deal,” Obama said.

Shares of private insurers that compete with the FHA fell yesterday after the plan was first announced.

Private Capital

Obama also reiterated that he wants Congress to act to wind down Fannie Mae and Freddie Mac to shrink the government’s influence in the market and bring in more private capital to create a less risky housing finance system.

Before his speech, Obama stopped in a low-income neighborhood in South Phoenix to tour a model home in a housing development owned by the Chicanos Por La Causa Inc. non-profit.

The subdivision was hurt by the economic downturn and was full of weed-strewn vacant lots before the non-profit bought it with help from the Department of Housing and Urban Development, according to the White House.

That’s given middle income families “a chance to buy a beautiful home in a nice neighborhood,” Obama told reporters after touring the house.

Arizona Lagging

In Arizona, 19 percent of mortgages are underwater, meaning the amount owed is more than the value of the home, according to data compiled by CoreLogic Inc. Nationally, 10 percent of mortgages are underwater.

The FHA has been increasing premiums since 2011 to offset losses caused by defaults on mortgages it backed after the housing bubble burst. Housing industry participants say the increases in annual fees, which are now at 1.35 percent of the loan balance, are squeezing buyers with modest incomes out of the market.

First-time purchasers accounted for about 33 percent of buying in 2014, the lowest share since 1987, according to a survey from the National Association of Realtors released in November. The FHA estimates that as many as 250,000 such Americans will enter the market over the next three years after the premium reductions.

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