Search

FHA Unveils Blueprint for Improving Credit Access

by devteam May 15th, 2014 | Share

ThernFederal Housing Administration (FHA) says that qualified buyers are currently underservedrnby the housing market.  The economicrncrisis significantly constrained credit, making it tough for anyone with lessrnthan perfect credit to obtain a mortgage. rnPerhaps as many as 13 million people with credit scores below 752, thernaverage for Freddie Mac and Fannie Mae loans, are shut out of the market.  This hurts American families and underminesrnefforts to build more stable communities.</p

FHArnhas issued a new handbook titled “Blueprintrnfor Access” outlining additional steps the agency is taking to expandrncredit access to these borrowers guided by several principles to do sornresponsible.  The first is to encouragernhousing counseling to ensure borrowers are well-educated about home-buying andrnmortgage financing.  The second is tornestablish clear rules of the road for lenders to ensure them they can makernloans without fear of unanticipated consequences, and the third is to avoidrnunsound lending practices by building on the reforms already in place tornsupport safe lending.</p

FHArnsays that research shows that the first principle, encouraging housingrncounseling, works.  There is a strongrncorrelation between counseling and mortgage performance.  Borrowers who receive counseling have arndelinquency rate that is 29 percent lower for first-time homebuyers and 15rnpercent lower overall than borrowers who do not.  As the first step in the new Blueprint forrnAccess FHA is launching the HAWK pilot program, HomeownersrnArmed with Knowledge.  </p

The four-year pilot will permit homebuyersrnto qualify for savings on FHA-insured mortgages if they complete HUD-approvedrnhousing counseling provided through independent nonprofit organizations.  The counseling is aimed at improving buyers’rnbudgeting skills and gives them individualized, objective advice onrnunderstanding the rights and responsibilities of homeownership, addressingrncredit and savings barriers, and meeting their overall housing and financialrngoals. </p

Homeowners who complete therncounseling before signing a home purchase contract and then complete additionalrnpre-closing counseling will receive a 50 basis point reduction in the upfrontrnFHA mortgage insurance premium (MIP) and a 10 basis point reduction in thernannual FHA MIP. Choosing to participate in post-closing counseling and maintainingrnthe mortgage for two years with no serious delinquencies will bringrnparticipants an additional 15 basis point reduction in annual MIP.   FHArnsays the average buyer would save approximately $325 a year – or almost $9,800rnover the life of their loan. </p

The second and third principles willrnbe addressed by a new Quality Assurance Initiative.  FHA says that clarity with respect to qualityrnassurance measures enhances access for potential borrowers because lenders canrnoriginate loans confidently-knowing their mortgages meet FHA standards.  FHArnhopes that its actions will reduce the use of credit overlays by lenders.  </p

The initiative focuses on four areas,rnclarifying policy, enhancing the approach to assessing loan quality, sampling arnlarger variety of loans, and supplementing lender performance metrics.  </p

The first step in clarifying policy isrna new FHA Handbook, the first section of which, “Application throughrnEndorsement,” was published last October. rnSubsequent sections on oversight and compliance, appraisal guidance,rnservicing, and other topics will be published throughout this year. FHA is alsorndeveloping a new methodology for evaluating underwriting defects that will bernmore descriptive; identifying specific defects, their related causes, andrnlevels of severity. </p

The agency will be expanding its loanrnsampling away from its primary emphasis on higher-risk loans to include arnlarger sampling of performing loans. This approach should provide a morernbalanced view of underwriting quality.  </p

FHA also plans to introduce a nationalrnlender performance metric to supplement its Lender Compare Ratio which comparesrnthe rate of early defaults and claims for single-family loans within arngeographic area.  This new metric willrnassess lender performance based on the default rate within three credit scorernbands and compare it to an FHA target rate rather than to the lender’s peers. </p

“This is a win for families, FHA,rnlenders, realtors and the overall market, which is why we are very excitedrnabout its potential impact, said Shaun Donovan, Secretary, U.S. Department ofrnHousing and Urban Development.  “We want to create an environment thatrnencourages responsible behavior and provides clear rules of the road so lendersrncan originate loans without fear of unanticipated consequences. We want lendersrnto be able focus on the quality of their processes and lend to all qualifiedrnborrowers.”

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.

About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

See all blogs
Share

Comments

Leave a Comment

Leave a Reply

Latest Articles

Real Estate Investors Skip Paying Loans While Raising Billions

By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...

Late-Stage Delinquencies are Surging

Aug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...

Published by the Federal Reserve Bank of San Francisco

It was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...