WASHINGTON May 13 The Obama administration will reduce the fees it charges first-time home buyers for government backing of their mortgages as long as they undergo counseling when they purchase a home, a top official said on Tuesday.
An increase in interest rates has weighed on the U.S. housing market in recent months, and policymakers are looking for ways to improve access to credit.
Taxpayers are on the hook for about $1 trillion in mortgages backed by the Federal Housing Administration, but Housing and Urban Development Secretary Shaun Donovan said counseling can reduce the chances that first-time buyers fall behind on payments.
"It helps ensure that we are dealing with responsible buyers," Donovan told a realtors convention.
While the government has raised its fees for backing mortgages since a home lending boom and bust helped trigger the 2007-09 recession, Donovan said the FHA this fall would dial back its fees for first-time buyers who commit to counseling when applying for their loans.
The FHA, which doesn't directly lend money but guarantees about a third of all new U.S. mortgages, will reduce fees further for buyers who also undergo further counseling after closing on their homes and go two years without falling behind on payments.
Cheaper mortgages could help many home buyers get into the market, which has slowed sharply since the Federal Reserve last year signaled it would reduce its support for the economy.
That pushed interest rates higher for new mortgages. The pace of sales for existing homes fell by 15 percent in the eight months through March, according to data from the National Association of Realtors.
"Before the crisis, credit was too easy to get. Now it is too difficult," Donovan said in prepared remarks. "We've been taking a long look in the mirror to see what we can do to increase the flow of credit."
Home buyers could save $10,000 over the life of their loans under the program, Donovan said.
He didn't say whether the program would cost taxpayers money, though he said research has shown counseling can reduce delinquencies by about 30 percent for first-time buyers. If fewer borrowers fell behind on their government-backed loans, taxpayers would not have to pay lenders as much to cover the bad loans. (Reporting by Jason Lange; Editing by Andrea Ricci)