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July 2014

FHA Unveils Plan Helping Underserved Borrowers Get Loans

By NWREporter

July 2014

Homebuyers who complete HUD-approved housing counseling before closing may be able to lower their mortgage insurance premiums, thanks to a new program from the Federal Housing Administration (FHA). The announcement drew praise from Realtors® and policy directors.

FHA unveiled the plan, known as Homeowners Armed with Knowledge, or HAWK, as part of its "Blueprint for Access." That initiative outlines steps the agency is taking to make it easier for underserved borrowers to get a loan. The FHA also released more information on its Quality Assurance Initiative, a program to provide clarity and transparency to FHA-approved lenders.

With HAWK, borrowers who complete the counseling before closing may receive a 0.5 percentage point reduction in their upfront insurance premium. They may also qualify for additional savings if they take part in post-closing counseling and show a record of on-time payments for two years. That could result in an additional 0.15 percentage point reduction.

The FHA said that the counseling is designed to help buyers understand the rights and responsibilities of homeownership, and to improve buyers' budgeting skills and housing decisions.

On an FHA loan with an average loan balance of $180,000, borrowers who go through counseling would be able to decrease their payments by nearly $325 a year in insurance costs - or $9,800 over the life of a 30-year loan, according to FHA.

Steve Brown, president of the National Association of Realtors®, called HAWK a "step in the right direction" by making mortgage credit available to more qualified homebuyers. NAR's top official urged expediency in developing the program and making it available to homebuyers. "We have many qualified homeowners who need help now, and are being shut out of the market due to record high annual premiums and mortgage insurance for the life of the loan," he stated.

The director of housing policy for the Bipartisan Policy Center also praised the FHA's new plan, suggesting it's not a moment too soon. "Expanding access to affordable mortgage credit is an urgent national priority," according to Pamela Patenaude, the BPC director. "Our nation's economic recovery depends on a strong housing market that allows creditworthy families to obtain mortgage financing on safe and affordable terms. Unfortunately, mortgage-lending standards have become so tight today that large segments of the U.S. population are being excluded from the opportunity to enter the homeownership ranks."

As part of its Quality Assurance Initiative, the FHA said it plans to focus on four areas in the coming months to help lenders know their mortgages meet FHA standards "so they can originate loans with confidence." Areas of emphasis include clarifying policy, enhancing its approach to assessing loan quality, sampling a larger variety of loans, and supplementing its lender performance metrics.

The 8-page FHA Blueprint for Access may be viewed online.

"This is a win for families, FHA, lenders, Realtors® and the overall market, which is why we are very excited about its potential impact," said Shaun Donovan, Secretary, U.S. Department of Housing and Urban Development. "We want to create an environment that encourages responsible behavior and provides clear rules of the road so lenders can originate loans without fear of unanticipated consequences. We want lenders to be able focus on the quality of their processes and lend to all qualified borrowers."