In a step to make sure that home buyers are more informed when obtaining their first mortgage, the Federal Housing Administration recently proposed a four-year pilot program “HAWK for New Homebuyers.” HAWK stands for Homeowners Armed With Knowledge and is a new program designed to integrate HUD’s Housing Counseling program with FHA-insured mortgage origination and servicing.
One of the most interesting features of the HAWK for New Homebuyers plan is that it will provide FHA insurance pricing incentives to first-time homebuyers who participate in housing counseling and education. The classes cover topics such as how to evaluate housing affordability and understand mortgage alternatives, financial planning, and the rights and responsibilities of homeownership. The program is based on the premise that educated consumers will be more likely to budget effectively and pay their mortgages in a timely fashion as well as be aware of resources that are available if trouble strikes. According to HUD figures,delinquency rates for borrowers who have received counseling are 29 % lower for first-time homebuyers and 15% lower overall.
The savings can be substantial. The FHA proposes to give homeowners who complete housing counseling before signing a contract to purchase a home and who complete additional pre-closing housing counseling a 50 basis point reduction in the upfront FHA mortgage insurance premium (MIP) and a 10 basis point reduction in the annual FHA MIP. Those who participate in post-closing counseling and pay their mortgage in a timely fashion can save even more. After two years with no serious delinquencies, participants receive an additional 15 basis point reduction in annual MIP. The FHA estimates that pn the average FHA loan balance of $180,000, these reductions can add up to nearly $9,800 in savings over the life of the loan.