FHA Takes Additional Steps to Provide Access to Credit for Underserved Borrowers
The Federal Housing Administration (FHA) recently issued its “Blueprint for Access,” outlining the additional steps the agency is taking to expand access to credit for underserved borrowers. These steps include encouraging a broader use of housing counseling. In addition, HUD will publish a notice in the Federal Register for the Homeowners Armed with Knowledge (HAWK) pilot program to further incorporate housing counseling into the home-buying process for borrowers using FHA-insured financing.
Under the new pilot, homebuyers will qualify for savings on their FHA-insured loans by completing HUD-approved housing counseling provided through independent, non-profit organizations that give people the tools they need to understand the rights and responsibilities of homeownership. This counseling is aimed at improving buyers’ budgeting skills and housing decisions. The Blueprint for Access also includes enhancing FHA’s quality assurance efforts. HUD also announced more information on FHA’s Quality Assurance Initiative, intended to provide greater clarity and transparency to FHA-approved lenders to encourage lending to qualified borrowers across the credit spectrum.
“This is a win for families, FHA, lenders, REALTORS® and the overall market, which is why we are very excited about its potential impact,” says 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.”
“FHA’s mission is to make sure that there is access to affordable mortgage credit for underserved borrowers and communities,” says Carol Galante, FHA Commissioner. “Our blueprint to expand credit access outlines the steps we are taking over the next few months to make that happen. These programs transform the way we do business, make us a better partner, and help reduce risk across the market.”
A healthy housing market is key to a sustainable economic recovery and the economic crisis significantly constrained credit, making it tough for anyone with less than perfect credit to obtain a mortgage. Shutting these creditworthy borrowers out of the market hurts American families and undermines efforts to build more stable communities, create pathways to the middle class, and increase homeownership opportunities for minority and low-wealth borrowers. FHA is committed to finding ways to responsibly increase access for underserved borrowers.
Under the four-year HAWK for New Homebuyers pilot program notice, homebuyers who commit to housing counseling will qualify for tangible savings on their FHA-insured loans. The average buyer would save approximately $325 a year—or almost $9,800 over the life of their loan. FHA proposes that homeowners who complete housing counseling before signing a contract to purchase a home and who complete additional pre-closing housing counseling will receive a 50 basis point reduction in the upfront FHA mortgage insurance premium (MIP) and a 10 basis point reduction in the annual FHA MIP. Choosing to participate in post-closing counseling and a track record of timely mortgage payments will bring even greater benefits. After two years with no serious delinquencies, participants receive an additional 15 basis point reduction in annual MIP. The HAWK program is a strong step toward integrating housing counseling into the home-buying process and ensuring broad access to housing counseling services.
Proposed changes to FHA’s quality assurance measures will provide clarity and transparency in FHA’s policies to encourage lending across the entire credit spectrum—especially for underserved borrowers. Clarity with respect to quality assurance measures enhances access for potential borrowers because lenders can originate loans confidently—knowing their mortgages meet FHA standards. By changing the way FHA provides policy direction and monitors lender compliance and performance, the FHA insurance fund, borrowers, lenders and taxpayers will be better protected.