While the cut hadn't actually gone into effect yet, lenders were pricing FHA mortgage applications with lower costs for two weeks' worth of borrowers. Those borrowers now face higher monthly payments, and some no longer qualify for their loans, due to very strict debt-to-income requirements.
"That's every FHA application from Jan. 9 to Jan. 20," said Matthew Graham, chief operating officer of Mortgage News Daily. "That equates to another 0.375 percent rate increase for prospective FHA borrowers."
FHA borrowers tend to be those with the lowest cushion for cash. The program was designed for homebuyers who could only afford very low down payments, hence the insurance. The FHA offers 3.5 percent down payment loans. While other lenders have low down payment programs, they also require mortgage insurance and often require higher FICO credit scores than the FHA.
For all borrowers, investor euphoria after the inauguration served stock prices well, but did just the opposite to the bond market. As investors sold out of the safety trade, bond yields went up and mortgage rates follow those yields. Rates spiked after the election, but settled back over the holidays. This week, for the first time this year, mortgage interest rates moved up again.
"Whether we talk about the past week or the past two months, Trump has clearly had a negative impact on rates," said Graham.
The rate impact reared its head in sales of newly built homes in December. They fell much harder than expected after solid growth in October and November. Higher rates hit new homes harder because those houses are more expensive than comparable existing homes.
"Going forward, it's unlikely that housing will be much of a drag on growth, but Q4 data showed a slowdown in wage and salary growth that could certainly impact housing affordability, particularly as interest rates keep rising," wrote Svenja Gudell, chief economist at Zillow.