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HAWK Flew the Coop — What Now?

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Posted On: 05/06/2015

QUESTION:

You recently wrote that the FHA’s HAWK program had been canceled by Congress. My grandson has just purchased a house, so what are his alternatives?

ANSWER:

A program could not be more canceled than HAWK. As the Congress wrote in the most recent federal budget, “none of the funds made available by this Act nor any receipts or amounts collected under any Federal Housing Administration program may be used to implement the Homeowners Armed with Knowledge (HAWK) program.”

HAWK would have let your grandson and other borrowers save nearly $10,000 in mortgage insurance premiums over the life of the loan in exchange for making timely payments and taking homeowner education classes. Now, without HAWK, buyers have one less option in the marketplace.

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Happily, there are some alternatives.

First, Fannie Mae and Freddie Mac now offer loans with as little as 3 percent down, a far lower requirement than the traditional 5-percent standard. These loans, of course, require the use of private mortgage insurance because they represent financing with less than 20 percent up front from the borrower.

Second, the overall FHA program remains in place. As of January, the annual mortgage insurance premium for most new borrowers was reduced by .5 percent. This means a borrower with a $200,000 loan will save roughly $1,000 in the first year of the mortgage term. HUD estimates that its new program will save the average borrower $900 a year and bring an additional 250,000 purchasers into the market. This is important because in 2014 existing home sales actually declined.

If anything, the new FHA program is better for consumers than HAWK for several reasons:

• It represents a substantially larger cost savings than HAWK offered.

• It makes the FHA program with just 3.5 percent down even more attractive.

• Borrowers are not required to take education programs to qualify for the lower annual mortgage insurance premium – though such classes remain a good idea, especially for first-time borrowers.

Third, the VA program with nothing down remains in place for qualified borrowers.

Killing the HAWK program effectively gave HUD a license to offer even wider fee reductions, something borrowers will greatly appreciate.

Meanwhile, on Capitol Hill, the 1,602-page budget contained no explanation for the HAWK reductions, just one of those curious things which happens in the back rooms of Congress. Will Congress now go after the lower FHA fees? That’s unknown.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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