July 15 - The United States Department of Housing and Urban Development (HUD) in its “Blueprint for Access” detailed, “the average credit score for loans sold to the GSEs is 752. Currently there are 13 million people with credit scores ranging from 580 to 680”.
The Homeowners Armed With Knowledge (HAWK) program provides homebuyers willing to equip themselves with more education about homeownership with powerful savings over the life of the loan. Currently, the program is still in the ground works, standing open to public comment until August 2014. By Fall 2014, HUD plans to implement phase one of the HAWK Pilot Project. The pilot program will last a total of four years. Under the HAWK pilot program, homebuyers are eligible for a reduced rate on mortgage insurance premium after they take the class. HUD contends 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 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”. As a result, the HAWK program has a strong capability of saving homeowners hundreds a year and thousands over the total life of the loan. Such significant savings can qualify a prospective buyer for a larger house or open options up to a better area. On the average FHA loan balance of $180,000, HAWK participants may receive up to $9,800 in savings over the life of the loan.
Overall, the HAWK program poses a great opportunity for prospective homebuyers and the economy as a whole. When millions of consumers are shut out of the market, it is difficult for Americans to establish stable communities, forces many to pour hundreds of thousands of dollars into moving expenses and uproots them from a steady lifestyle. Without a healthy housing market, the recovery of the economy is simply not feasible. The HAWK program aims to better support the middle class and lower class homebuyers while simultaneously gaining them entry into the marketplace. This community will no longer be hindered by stringent credit requirements as the HUD Blueprint contends, “FHA is committed to finding ways to responsible increase access for underserved borrowers”. That being said, facilitating access to credit does not mean returning to the days of predatory lending practices. The government has reformed lenders, and now HUD is turning focus back to those that make the mortgage industry go round: it’s consumers.
HUD identifies the HAWK program as the responsible way to provide creditworthy borrowers mortgage credit. The more education people have about how things work, the better the position they are in to make an informed decision. The process of obtaining a home mortgage is already so lengthy, convoluted, and even overwhelming, that it is easy for homebuyers to skip over the important details. The idea behind doing this is to achieve sustainability. By empowering consumers with knowledge, they are better positioned to purchase a home loan within their financial reach, thus making it more likely that they will not default on the loan, which minimizes risk, is better for lenders, their investors, the FHA which insures these home loans, and the economy as a whole.
The “Blueprint for Access” states that, “delinquency rates for borrowers who have received counseling are 29% lower for first-time homebuyers and 15% lower overall”. These statistics are not a surprise, as when prospective buyers know more about the subject than they are more confident and more aware if they are getting a bad deal. This makes the access to credit not only available to prospective homebuyers, but it also makes it sustainable.
Many of us do not have such opportunities to become more financially literate. We get thrown into tons of real life situations every day without fully comprehending the logistics of our negotiations or their long-term effects on our lives and bank accounts. The HAWK initiative is a step in the right direction for a more financially literate America, as consumers who participate in the HAWK counseling “the counseling is aimed at improving buyers’ budgeting skills and gives them individualized, objective advice on understanding the rights and responsibilities of homeownership, addressing credit and savings barriers, and meeting their overall housing and financial goals”. By making these choices and taking out the time necessary to map out, prepare for, and manage large expenditures, we avoid economic crises as homebuyers and lenders alike are better prepared for the mortgage loan.
HUD is also clarifying their policies so that lenders can better and more easily understand the FHA guidelines. With lenders more in-tune with FHA expectations, they will be able to reduce credit overlays, which are stricter lending criteria so that they can protect their financial interest and ensure that their mortgage loans are up to par with FHA guidelines. These credit overlays are another reason why many borrowers are being shut out of the market. This will be achieved with the new FHA handbook that is an authoritative document with definitive guidelines to all aspects of the FHA single-family programs. HUD refers to this as “establishing clear rules of the road” as “taking steps to clear quality assurance policies helps ensure lenders make loans without fear of unanticipated consequences”.
Mortgage News Daily quotes 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”.