There is a key provision buried in the Transportation, Housing and Urban Development and Related Agencies Appropriations Act for Fiscal Year 2015 that if implemented, is causing lenders to be concerned about the potentially costly impact it could have to them.
The provision contained in Senate Bill 2438 would assess a new fee on lenders to fund certain risk management improvements in the Federal Housing Administration mortgage insurance program, including the new “defect taxonomy” intended to give FHA-backed lenders greater clarity regarding loan quality reviews.
In a letter to Senate and House appropriators, the Mortgage Bankers Association and a coalition of other trade associations heeded concerns that while S. 2438 was approved by the Senate Appropriations Committee, it was never considered by the full Senate. In contrast, the House-passed version of this appropriations bill did not give HUD the authority to charge this new fee.
Under the current provisions, the U.S. Department of Housing and Urban Development would be allowed to charge lenders an administrative support fee, which would generate an estimated $30 million annually to fund an enhanced quality assurance program for single-family loans.
The fee will support efforts to clarify lending rules for lenders, giving them greater confidence to loan to more FHA-eligible borrowers, explained Cameron French, HUD press secretary.
As a result, it will cost around $40 for every $100,000 borrowed in order to support new programs like Homeowners Armed with Knowledge (HAWK) that helps provide counseling for borrowers and in turns offers borrower’s help with their monthly mortgage payments.
“In the last few years, FHA has taken a number of steps to improve services to lenders and borrowers. Currently, FHA is being asked to meet the demands of a 2014 marketplace using 1980s technology. Given the tough fiscal climate and the increasing demands on FHA, we are proposing to apply a modest fee to lenders that would be applied moving forward and not retroactively," said French. "Ultimately the funds will make it possible for FHA to continue to enhance access, helping to place homeownership within reach of more Americans."
However, key concerns of the MBA still include:
1. What’s the appropriate time frame?
The current fee is retroactive and is calculated using the previous year’s mortgage originations instead of new originations. As a result, the MBA believes, “This will retroactively raise costs on mortgages that have already been originated and insured.”
The solution: The fee, if included in a final appropriations bill, should be calculated on a prospective basis.
2. How big is too big of a fee?
While HUD only sought $30 million for this new program, and the Senate Appropriations Committee provided $8 million of the original request through a direct appropriation, the language in the appropriations bill does not limit HUD to collecting only the remaining $22 million.
The legislation allows FHA to charge as much as 4 basis points on aggregate lender originations, which to the MBA is far in excess of what it needs.
And because the fee is not limited only to FY 2015, HUD would be permitted to levy this charge in future years.
The Solution: If the final T-HUD appropriations bill contains language authorizing FHA to impose a fee on lenders to fund a new quality assurance program, it should be limited in size, scope and duration to cover the specific technology improvements needed to implement the program.
Other trade associations involved include: American Bankers Association, American Land Title Association, Credit Union National Association, Housing Policy Council, Independent Community Bankers of America, Leading Builders of America, National Association of Federal Credit Unions andthe National Association of Home Builders.