The Federal Housing Administration (FHA) seeks comments on a proposed pilot program which reduces mortgage insurance premiums (MIPs) for first-time homebuyers who complete housing counseling before, during and after mortgage origination. The pilot program is scheduled to begin this fall. HAWK is one of several steps HUD is taking to improve FHA mortgage access and quality.
As it’s now structured, HAWK requires individuals to be first-time homebuyers and qualify for an existing FHA-insured mortgage program. Eligible homebuyers are required to complete:
- six hours of pre-contract counseling, which cover the home shopping, buying and mortgage application process, the role of real estate professionals in the home buying process and various resources for homebuyers;
- one hour of pre-closing counseling, which reviews the homebuyer’s particular home loan, their expected housing costs and closing documents; and
- one hour of post-closing counseling, which covers budgeting for planned and unplanned housing expenses and various resources to avoid mortgage delinquency and default.
Homebuyers who complete pre-contract and pre-closing counseling save:
- 50 basis points on the loan’s up-front MIP; and
- 10 basis points on the annual MIP.
Homebuyers who complete post-closing counseling and avoid a 90-day delinquency during the 18 months following mortgage origination will receive an additional 15 basis point reduction on their annual MIP. The 15 basis point reduction goes into effect two years from the mortgage closing date.
The HAWK program will be implemented in two phases over four years. The first phase will open the program to a limited number of housing counselors and U.S. Department of Housing and Urban Development (HUD)-approved lenders. After this “test” period, phase two will open the program to all lenders issuing FHA-insured loans. However, even then the number of homebuyers qualifying to participate will be capped at a certain number each year. The total length of the HAWK pilot program is slated to last four years, at which time the Department of Housing and Urban Development (HUD) will reevaluate its efficacy.
The FHA estimates the average homebuyer will save $325 a year through the HAWK program. Not a lot, considering the extra burden MIP places on a homeowner in the first place. The real benefit of this program is the financial literacy component. Studies cited by the FHA show first-time homebuyers who receive housing counseling are 29% less likely to default than those who don’t. If the pilot program yields the anticipated reductions in defaults, the result is huge for a nation still picking up the pieces from the 2008 housing crisis.
Financial education is an important part of the home buying process, which is currently skipped over by most. If this pilot takes off, resulting in fewer delinquencies and defaults, the outcome of more informed homebuyers and homeowners will be well worth the extra eight hours of counseling.
Have your own take on the pilot, or want more information on how you can participate? More information and a comment submission form is available here. The deadline to submit comments is July 14, 2014.
first tuesday will provide a list of participating lenders and counselors in California once the FHA finalizes this information.