The administrative order will end Obama’s efforts to cut premiums on FHA-insured home loans.
On January 20, 2017, Hannah Levintova writes on Mother Jones:
Earlier this month, then-President Barack Obama issued an executive action requiring the Federal Housing Administration to decrease insurance premiums on FHA mortgages, a change that could have potentially saved low-income homeowners as much as $900 per year. In his first administrative order as president, President Donald Trump suspended this Obama order, which was slated to go into effect on January 27. In practice, this means that low-income homeowners will be stuck paying higher insurance premiums on their FHA-insured mortgages.
FHA loans enable homebuyers—often those with lower incomes and who have fewer assets or bad credit—to bypass conventional lenders who would likely deny them loans by taking out a mortgage that’s insured by the federal government. The borrowers have to pay FHA mortgage insurance, to protect the mortgage lender from a loss should the borrower default on their home loan. In his announcement of the change, Obama said the drop in premiums would help stabilize the housing market and spur growth in housing markets still recovering from the financial crisis. …the article continues.
This is a really excellent explanation of how the Federal Housing Administration (FHA) mortgage insurance program is designed to provide loan insurance to lenders making mortgage loans for Americans to purchase homes.
We can more effectively implement the principle of loan insurance to the financing of new, non-human productive capital asset formation, that is expected to generate future earnings, first pledged to repay interest-free capital credit loan advances. Feasible capital asset formation projects are inherently more insurable because, unlike a home, such project investments generate their own earnings to pay for their own formation.
Using insured, interest-free capital credit to finance FUTURE productive asset formation and thus the growth of the American economy can empower EVERY chile, woman and man to acquire, over time, significant financial assets that are wealth-creating and income-producing. This is solution to tectonic shifts in the technologies of production and slave labor globalization that is destroying jobs and devaluing the worth of labor.
As Michael D. Greaney, my colleague at the Center for Economic and Social Justice (www.cesj.org) argues:
Any insurance company can offer capital credit insurance and reinsurance (assuming it doesn’t go against what they were set up to do in the first place), and they could be federally chartered instead of by the states to give better and more effective oversight, but as a principle, if something can be done outside government, it probably should be.
Strictly speaking, existing savings are not essential to the process of money creation for productive projects that are expected to generate earnings. You do need savings, of course, but they can be future savings: the present value of future increases in production that have been monetized and can thus be used to finance new capital formation. You’re not necessarily trapped by past savings, that is, decreases in consumption in the past.
Still, any lender (a category that includes people and institutions that create money) wants to be reasonably certain that he, she, or it is going to get the money that was created back so it can be cancelled once it has done its job. If the repayment doesn’t come out of profits that are made in the future, then it can only come out of past savings. A prudent lender will always insist — and sometimes is required by law to insist — that a borrower have the ability to repay the money the lender created for him or her even (or especially) if the borrower’s capital project turns out to be a dud and doesn’t generate enough profits to repay the loan.
What if the person seeking the capital credit loan doesn’t have collateral, that is, other wealth that she or he can use to pay off the loan just in case her/his capital project doesn’t make the money she/he expects to make?
The wealth she/he needs to “secure the loan” (i.e., make it safe for the bank to put its reputation and credit rating on the line for her/his’s benefit) doesn’t have to be in the traditional form of collateral, i.e., existing wealth that she/he owns.
Instead, she/he can replace traditional collateral with capital credit insurance and reinsurance. This does exactly the same thing as traditional collateral, only better and cheaper. She/he in a sense “rents” the insurance pool for a premium that can be relatively small because it’s based on the risk that her/his particular loan will go bad — which would be pretty low for something that the bank looks over with sufficient care (bankers tend to know their own business).
This is, in fact, how insurance has always worked. Everyone knows that somebody, somewhere, is likely to lose something, e.g., out of a hundred ships that set sail for trading ventures in a year, five of them will be sunk, attacked by pirates, or something. The overall risk of loss is therefore 5 percent for that year.
What the guys down at Lloyd’s Coffee House (a sort of seventeenth century Starbucks, but without Internet) decided was that all the merchant ship owners could chip in 5 percent of the value of their vessels and cargos, and build up a pool. For example, if the total value of the merchant shipping for that year for the gang was £100 million, they would have an insurance pool of £5 million after everyone paid his or her premiums.
If one guy’s ship made it back to port safely, his 5 percent insurance premium was counted as just another cost of business, and deducted from his revenues. If, however, his ship was one of the unlucky ones captured by pirates, he got paid for the value of his vessel and cargo, and could start over again without going bankrupt. His 5 percent insurance premium still counted as a cost of doing business and was deducted from his revenues, but instead of writing off the cost of his ship and cargo as a loss and checking into debtors’ prison, he paid his bills and bought another ship . . . and hopefully avoided pirates in the future.
Any person can do the same thing. If everybody who doesn’t have traditional collateral chips in the “risk premium” (i.e., the chance that their loans will go bad) and puts the money into a general pool, the money will be there to make good on any bad loans without either the bank or the borrower being forced into bankruptcy.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the Capital Homestead Act (aka Economic Democracy Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/.
