One of the biggest roadblocks to home ownership for the
average family in the United States is credit; or rather, the lack thereof. But
through a variety of circumstances – poor spending decisions, unemployment,
crippling debt, and so on – many Americans simply do not meet the minimum
requirements lending institutions typically insist upon if they’re going to be
borrowing the hundreds of thousands of dollars needed to purchase a home.
However, the Federal Housing Administration (FHA) has created a detour of sorts around that credit roadblock with the recent announcement of their "Blueprint for Access [pdf]," a new set of guidelines that adhere to those deemed Underserved Borrowers; the goal is to allow them greater access to credit via a number of measures – including housing counseling – while also providing additional levels of protection for lenders as well.
NationalMortgageProfessional.com states that the Blueprint for Access is a pilot program where homebuyers can qualify for savings on their FHA-insured loans by improving their budgeting skills and housing decisions. How? By completing U.S. Department of Housing and Urban Development (HUD)-approved housing counseling provided through independent nonprofit organizations that give people the tools they need to understand the rights and responsibilities of homeownership. In addition, another aspect of the Blueprint for Access is enhancing FHA’s quality assurance efforts, providing greater clarity and transparency to FHA approved lenders to encourage lending to qualified borrowers across the credit spectrum.
But what Blueprint for Access doesn’t do, is provide true savings for lower income borrowers by decreasing the heavy burden of rising mortgage insurance costs. We asked mortgage professional Mark Madsen, of BRHomeLoans.com, for an insider’s perspective. Madsen says “All mortgage applicants should be required to complete consumer education and counseling to obtain a federally insured mortgage, not just lower income or higher risk borrowers. At least the Blueprint for Access is moving in the right direction and attempting to reward homeowners for paying their mortgage on time by reducing the MI payments over time. $325 a year is hardly a savings though on a $100,000 loan.”
According to a press release issued by the U.S. Department of Housing and Urban Development, Shaun Donovan, Secretary of the organization, threw his support behind the FHA’s new plan, stating that the "Blueprint for Access" should shape up to be a very effective way for more people to qualify for home loans as well as an excellent means to help give the lagging home mortgage market vital growth.
“This is a win for families, FHA, lenders, realtors and the overall market, which is why we are very excited about its potential impact,” he said. “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.”
Carol Galante, FHA Commissioner, stated in the same release that assisting with families and individuals who are missing out on the American dream of home ownership is not only the duty of government, but is a priority when it comes to helping quell the nation’s turbulent economy; clearly, she said, the two go hand-in-hand.
“FHA’s mission is to make sure that there is access to affordable mortgage credit for underserved borrowers and communities,” she said. “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.”
Realtor.org reported that the housing counseling program requires prospective borrowers to participate in what is called Homeowners Armed with Knowledge (HAWK). Once they have successfully participated both in HAWK and additional pre-closing housing counseling before signing a contract to purchase a home, they 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. In addition, Realtor.org reports that homeowners that participate in post-closing counseling, and have a track record of timely mortgage payments, receive an additional 15 basis point reduction in annual MIP.
USFinancepost.com states that the FHA also plans to create a national lender performance metric to supplement the Lender Compare Ratio that compares the rate of early defaults and claims for single-family loans within an area. This metric will analyze lender performance based on their default rate within three credit score bands and compare it to the FHA target rate rather than other lenders; this is expected to provide a better assessment of lender performance.
These quality assurance initiatives are expected to be rolled out gradually over the summer and early fall 2014.