Maybe lowering the FHA annual mortgage insurance premium or reducing the required down payment are not enough to get more potential home buyers access to credit (Access to Credit).
The intention of these changes is toreduce barriers to entry into the housing market for the first time home buyers. The money needed for a larger down payment and the qualification of the buyer to carry the monthly debt obligation are the primary barriers. These came about as an unintended consequence of the repayment rules required under the changes to TILA which took effect in January 2014.
The cry from the industry and consumer groups is that these changes have shut out many first time home buyers from getting the money needed to purchase a home. To address that issue Fannie and Freddie are reducing down payment requirements on conventional loans and FHA is reducing the required monthly insurance premiums on the loans they insure. This, all hope, will help open the doors to home ownership for more people.
Coupled with the new repayment rules of January 2014, are the new rules for the servicing of mortgage loans. These new rules provide specific requirements for what a servicer must do when handling a mortgage loan pertaining to, among other things, transfers of servicing, payment notification and processing, escrow administration, and most of all the servicing of consumers who go into default.
The new requirements have drastically increased the cost of servicing a loan. This cost affects the value of servicing rights and is priced into the cost of new loans. It will also increase the rate and fees for new loans which in turn will make it more difficult for first time homebuyers to become qualified for the financing needed to purchase a home. Ironic isn’t it.
The unintended consequences of removing the so called barriers to homeownership means more first time buyers have access to mortgage financing. That increases the potential for more defaults, increased cost of loan servicing, and increased costs of new loans. All of these create new barriers to entry for first time home buyers.
Then, what do we do? Maybe create new laws to require repayment ability and stricter loan servicing rules, to protect consumers, reduce defaults and stabilize the housing market.
Maybe there is a limit on the rate of homeownership. Maybe everyone is not ready or financially able to own a home. Maybe some barriers are good; they protect as intended.