DS News

22 AGENCY SPOTLIGHT A LOOK AT THE GSEs' LATEST POLICY DEVELOPMENTS AND TOP HEADLINES FHA PROGRAM AIMS TO EXPAND CREDIT; LOWER RISK e Federal Housing Administra- tion (FHA) issued its "Blueprint for Access," which aims to expand credit access for under- served borrowers. e announcement highlights a new pilot program, Homeowners Armed with Knowledge (HAWK), which incorporates hous- ing counseling into the home-buying process as a means to reduce the risk of loans becoming seriously delinquent among borrowers using FHA-insured financing. e agency cited a study from the Urban Institute that notes that the average loan from Freddie Mac and Fannie Mae has a borrower's credit score of 752, leaving 13 million borrow- ers with credit scores between 580-680 at a significant disadvantage when they attempt to secure loans. Under the new pilot, homebuyers will qualify for savings on their FHA-insured loans by completing housing counseling through independent, non-profit organizations. e counseling is intended to improve buyer's bud- geting skills and housing decisions. According to the FHA, housing counseling lowers the rate of seriously delinquent loans in first-time buyers by 29 percent. Overall, housing counseling lowers delinquency rates by 15 percent. "is 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 of HUD. "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 to focus on the quality of their processes and lend to all qualified borrowers." Under the four-year HAWK pilot program, homebuyers who commit to housing counseling will qualify for savings on their FHA-insured loans. e average buyer would save roughly $325 a year, or almost $9,800 over the life of the loan, according to FHA. e FHA proposes that homeowners who com- plete housing counseling before signing a contract to purchase a home and who complete additional pre-closing 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. Homeowners, if current after two years with no serious delinquencies, will receive an additional 15-basis-point reduction in the annual MIP through HAWK. However, not everyone believes that the FHA's efforts are necessarily in the best interest of homeowners. Edward Pinto, resident fellow and co-director of the American Enterprise In- stitute's International Center on Housing Risk, thinks the recent moves by the FHA could create more problems in the future. "FHA has not stood for sustainable home- ownership for at least five decades. It has failed in that regard. As evidenced from 1977 to 2012, one in eight FHA families ended up having a claim for insurance due to foreclosure or insur- ance from events that left the family's dreams shattered," Pinto said. He continued, "e direction that both FHA and FHFA are going, based on their an- nouncements, is to move the mortgage market down the slope of greater risk, with more unsus- tainable loans." Furthermore, Pinto believes that the last time underwriting standards created a safe and stable lending environment were in the early 1990's. "Qualified borrowers are underserved, yet the FHA qualified mortgage rules are ex- tremely broad and deep. Much of that credit box the FHA falsely describes as creditworthy, given their underwriting standards, are putting borrowers in harm's way by putting them in unsustainable loans," Pinto said. Carole Galante, FHA commissioner, thinks the new programs can be transformative for homebuyers across the entire range of credit scores." FHA's mission is to make sure that there is access to affordable mortgage credit for underserved borrowers and communities," Galante said. "Our blueprint to expand credit access outlines the steps we are taking over the next few months to make that happen. ese programs transform the way we do business, make us a better partner, and help reduce risk across the market." Foreclosure activity in the United States decreased annually by 5 percent in the month of May, according to RealtyTrac. KNOW THIS

• Cover