Understanding the Proposed FHA Fee

Published on April 6th, 2015

Meet The FHA Fee

While many people have heard of the FHA, most don’t know this government agency sets the standards for construction and underwriting while insuring loans from banks and lenders. The overall goals of this agency are to improve housing standards, provide financing systems, and help the mortgage market. Because of this goal, new programs are consistently introduced with the aim to improve the mortgage industry.

Late last year, Senate Bill 2438 was proposed by the FHA. While the senate rejected the bill, the bill has returned in the budget request for 2016. This bill aims to implement a fee to borrowers to provide funding for programs and a loan “defect taxonomy.” The “defect taxonomy” aims to give clarity to FHA-backed lenders in regards to loan reviews. With this bill in place, the U.S. Department of Housing and Urban Development can charge lenders a support fee, which stands to earn an estimated 30 million dollars to fund a quality assurance program for various home loans. This fee will also support increasing the knowledge of the rules for lenders, in hopes to give lenders greater confidence to process loans for FHA approved borrowers. The numbers work out to about $40 of every $100,000 borrowed will support these new programs, such as Homeowners Armed with Knowledge, which helps borrowers via counseling for mortgage payments.

The MBA, in conjunction with various other trade associations, responded to the House and Senate in a letter that voiced their concerns for Senate Bill 2438. Key concerns for S.2438 include the following:

  1. Time Frame: The current bill proposes that this fee will affect every origination in the past year. This will raise costs on mortgages that have been long originated and already insured.

  2. Is the fee too big? FHA is allowed to charge as much as a 4 basis point on aggregate lender originations, which may be excessive in many MBA members’ opinions. The fee isn’t limited to 2015 – So Housing and Urban Development can levy this charge again.
    While the original bill was rejected, it has made a comeback. Our CEO, Bill Cosgrove, shares his thoughts on the proposed fee here.

If you’re interested in learning more on how this bill may affect you or are researching which home is best for your needs, it’s best to start with speaking to a qualified mortgage professional. For more information, please feel free to contact a member of the Housing Buzz Team today.

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