HAWK to Reward Buyers, Reduce FHA Mortgage Insurance Premiums

HAWK-FHA-Reduce-Mortgage-InsuranceFHA Commissioner Carol Galante announced the HAWK (Homeowners Armed With Knowledge) pilot counseling program that will reward FHA borrowers with reduced mortgage insurance premiums.

The HAWK for New Homebuyers is a HUD approved home ownership counseling program that will reward qualified first time home buyer particpants with reduced Up Front Mortgage Insurance Premiums (UFMIP) as well as the annual mortgage insurance premium (MIP).

“HUD is moving ahead with a housing counseling program called HAWK (Homeowners Armed with Knowledge) that will reward FHA homebuyers that undergo intensive counseling. “That means lower upfront MI premiums at closing and a permanent reduction in the annual premiums,” Galante said. She indicated that the ‘Blueprint for Access’ to home ownership and details of the HAWK program will be announced very soon.

“We think that is a really good way of targeting financial incentive and making FHA more affordable to more people while at the same time protect FHA from default,” said FHA Commissioner Carol Galante in a recent interview.

How will the ‘Blueprint for Access’ and HAWK Counseling Program Help FHA Borrowers?

HAWK (Homeowners Armed With Knowledge) for Homebuyer counseling program will NOT necessarily help buyers qualify for larger loans, but rather make FHA financing more affordable than it is right now.

Achieving home ownership has become more difficult with current FHA mortgage insurance premiumsNAR President Steve Brown

Reduced UFMIP 

HAWK will reduce the UFMIP from 1.75% to 1.25% (.50 bps), but that WILL NOT reduce how much money a home buyer needs to come to closing with because the UFMIP is rolled into the new FHA loan balance.

 Reduced Monthly MIP

The HAWK home buyer program will reduce the annual (paid monthly) mortgage insurance premium by .10…..big whooopeee…that will not have any significant impact in helping borrowers qualify for more.

To be real honest, FHA borrowers will not see any measurable benefit that impacts their pocket book.

Reducing FHA’s UFMIP by .50 and the monthly mortgage insurance premium by .10 (MIP – annual) but not enough to have a financial impact that will encourage home ownership.

Is FHA’s High Mortgage Insurance Stopping People From Buying Homes?

National Association of Realtor® President Steve Brown said, “an estimated 125,000 to 375,000 potential buyers were priced out of the market in 2013 because of FHA’s high insurance premiums and mortgage insurance requirements.”

I think it’s very debatable whether they were priced out of the market due to the MIP being so high.  I think the 30-40% rapid home appreciation in 2013, driven by investors, is what priced out the typical FHA buyer.

If anything, FHA causes buyers to qualify for less than 2-3 years ago when FHA’s annual mortgage insurance premium was lower.

FHA reducing their loan limits from $500,000 down to $355,350 seems to be the next obstacle FHA put in place for buyers in Riverside and San Bernardino Counties that will reduce how many FHA loans they insure.

My Suggestion

What FHA should do is significantly reduce the annual MIP (which is paid monthly) in order to help buyers qualify for more or at least have a lower monthly payment.  After completing HUD’s HAWK home ownership counseling, I would rather see FHA raise the UFMIP, reduce the monthly MIP, and stop making the MIP permanent for the life of the loan.

Related Post: When & How to Remove FHA Mortgage Insurance

Is FHA the Loan of Last Resort?

Currently, FHA loans are the loan of last result because they charge a hefty 1.75% up front mortgage insurance premium AND charge an even more penalizing annual (paid monthly) mortgage insurance premium of 1.35%, which is essentially permanent for the life of the loan…..double ouch.

You can read details of the current up front and annual premium here.

Some people even believe FHA financing is predatory lender because they charge such high insurance fees/premiums on those who can afford it the least……..but that’s debatable considering the ‘riskier’ loans they insure.

FHA Loans are Targeted for Buyers who:

  • Have had a recent foreclosure, short sale, or bankruptcy
  • Have lower credit scores…..generally between 600- 660
  • Can’t come up with at least a 5% down payment for a Conventional loan
HomeLoanArtist Pro Tip: Did you know that FHA allows people to buy again after short sale, foreclosure or BK in as little as 12 months if they meet the FHA Back to Work ‘economic event’ circumstance?

Why Would FHA Offer the HAWK Program?

FHA has seen a huge drop in home buyers applying for FHA loans because the high FHA MIP is reducing how much they can qualify for OR they are not willing to pay high mortgage insurance premiums in exchange for a smaller 3.5% down payment.

I’m  fairly confident the pilot HAWK for Homebuyers home ownership counseling program is not designed to increase the number of FHA loans they insure.  FHA has told us many times they would like to reduce it’s role in mortgage lending even further, so their goal is still to insure fewer loans, but make them less risky borrowers.

FHA simply wants to reduce it’s risk, not insure more FHA loans.

Being proactive and arming homeowners with knowledge on what to expect for housing expenses, realistic affordability budgeting, and other basic financial management skills may be the key to achieving this.

Galante explains in National Mortgage News,  “Housing counseling, in our mind, is very important. We know that borrowers who receive counseling are up to 30% less likely to default on their mortgage than buyers who don’t,” she said.

Should Home Buyers Wait for HAWK Program?

The HAWK program will only be offered to a few select lenders to test pilot the program.  Testing for what I’m not 1005 sure…..to see if they default and foreclose?

Many home buyers are actively rebuilding their credit history/score and willing to wait for their credit scores to go up, or waiting for their ‘short sale-foreclosure-BK waiting period’ to be up, and/or waiting to save up at least 5% for a down payment in order to use a more affordable Conventional financing program with Private Mortgage Insurance.

However, home buyers who wait to buy will likely end up with a higher interest rate which will reduce how much they can qualify for and increase their cost of home ownership!  Plus, no one actually knows with 100% certainty when or if this HAWK pilot program will roll out.

It’s not the price of the home that matters, it’s the cost! – me

FHA Home Loan Alternatives

Future home buyers have several affordable alternatives to FHA financing right now that most do not know about.

Maybe you are eligible for a reduced PMI MyCommunity Mortgage, a $0 down USDA or VA loan, a first time home buyer down payment assistance program to help you satisfy part of the 5% down payment requirement for Conventional financing.

Rather than wait and see if the HAWK pilot program ever materializes and get stuck with a higher interest rate, prospective home buyers in California should contact me directly  or call (951) 215-6119 to review multiple options and alternatives.

Comments are closed.