For His First Act, Trump Widens Inequality Gap
Jan 28, 2017
An hour after his inauguration speech — in which he talked about helping working people and being a on the side of all Americans — President Donald Trump signed a regulation to further prevent social mobility for the working class. He rejected a rate cut that would have lowered monthly payments on home mortgage loans taken out by lower and middle-income families as well as first-time home buyers. The rate cut would have reduced the annual Federal Housing Authority (FHA) insurance premium on new mortgages for working class, middle class, and first-time home buyers from 0.85% to 0.6%. Basically, the cut would have shaved $1,250 annually off the payments on a $500,000 mortgage.
The FHA is a government agency, established by the National Housing Act of 1934, to regulate interest rates and mortgage terms after the tumultuous effects of the Great Depression. The FHA does not issue mortgages; it aids lending by selling insurance to protect against default. The insurance fees are essentially a tax paid by lower-and middle-class prospective home buyers. By rejecting the cut, which was scheduled to go into effect yesterday, Trump will be taking money from American home buyers to keep in the Trump administration warchest.
William Brown, President of the National Association of Realtors, said the suspension of the cut will have a negative impact on future home borrowers. According to their estimates, “Roughly 750,000 to 850,000 homebuyers will face higher costs. and 30,000 to 40,000 new homebuyers will be left on the sidelines in 2017 without the cut. We’re disappointed in the decision but will continue making the case to reinstate the cut in the months ahead.”
In a statement released by the California Association of Realtors, Geoff McIntosh (President, CAR) urged the Trump Administration to reinstate the rate cut: “We hope HUD and the Trump Administration will make it a priority to quickly review the reduction in the FHA mortgage insurance premium. Homebuyers in California, who would have saved an average of $860 a year, will be negatively impacted more than any other state by the decision to not reduce the FHA premium.”
It’s clear that rejecting the rate cut will hurt low and middle income Americans. What happens to the banks? By making FHA loans more expensive, traditional bank mortgages become more competitive. Banks naturally generate more profit from of their own loans than from FHA loans.
Trump’s policy hurts the working class and creates a competitive advantage for banks and mortgage lenders. And the corporations will keep making more money for their business.
Trump’s desire to transfer “power from Washington, D.C., and [give] it back to you, the people” is merely rhetoric, and his first move as President is an act of power retention. With the help of neoliberal policies, the American system has been rigged in favor of the wealthy elites. The Trump regime and the 1% will continue to benefit from these policies while the rest of the American people remain forgotten.
Eduard Nilaj is a recent graduate of the New School for Social Research, where he received a Master of Science in Economics. His research focuses on financial development, the political economy of development, and macroeconomic theory.