Federal Housing Administration (FHA) loans were less likely to enter default if borrowers were committed to housing counseling,The New York Times reports.
Housing counseling has a significant impact on assisting borrowers to remain current on payments and avoid default, more so than those who neglect counseling, according to a recent NeighborWorks America study cited in the article.
The study found that borrowers who underwent counseling prior to purchasing a home were nearly one-third less likely to fall seriously behind on payments in the first two years after closing than borrowers who did not undergo counseling.
FHA plans to incentivize housing counseling are part of the agency’s range of initiatives, including the “Blueprint for Access” pilot program, to expand access to FHA loans for millions of homeowners with “bruised” credit.
Borrowers who complete housing counseling—through an agency approved by the Department of Housing and Urban Development—will receive a 0.5 percentage point reduction in their upfront insurance premium.
Their annual premiums would also be reduced by 0.1 percentage points, with the potential for an additional 0.15 percentage point reduction for borrowers who participate in post-closing counseling and maintain a record of timely payments for two years.
On an average FHA loan balance of $180,000, the agency estimates that a borrower who undergoes housing counseling would be able to shave nearly $325 a year in insurance costs, or nearly $10,000 over the life of a 30-year loan.
Read more at The New York Times.
Written by Jason Oliva