While lenders welcome the increase, it could also benefit homebuyers by giving loan servicers more incentive to process FHA loan assumptions quickly.
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Homebuyers who want to “backend” their mortgage rates by taking over the seller’s FHA mortgage may have to pay up to twice as much upfront, as federal housing regulators this week announced the first increase in allowable fees and FHA loans since 2016 Assumed fees.
The Department of Housing and Urban Development announced Monday that it is raising the cap on FHA loan assumption fees from $900 to $1,800 “in an effort to reimburse mortgagees for the cost of processing assumptions at a rate appropriate for today’s market.”
The maximum fee to process FHA loan assumptions was originally set at $500 in 1994 because borrowers could not choose which servicer would process their loan assumptions, HUD said when it last raised the cap eight years ago.
The National Association of Community Home Lenders welcomed the increase, saying it is “critical to allowing lenders to recoup their loan commitment costs, which can provide homebuyers with significant savings by using existing lower-rate FHA mortgages.” Mortgage.
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Raunak Singh
Raunaq Singh, founder and chief executive of Roam, said raising the cap on servicer fees may also actually benefit homebuyers because it gives loan servicers more incentive to deal with assumptions.
“While mortgage brokers typically charge 2 percent of the loan amount to originate a new loan, servicers’ fees for processing assumptions are capped at $900,” Singer said. “But assumptions require a lot of manual underwriting work and are often a time-consuming process.”
Roam helps homebuyers find homes that qualify for mortgages and manages the entire process on behalf of buyers, sellers and agents, charging buyers a 1% fee through closing costs.
Roam will not pass on the higher fees charged by FHA loan servicers to borrowers, Singer said.
VA loans assume a cap on servicer fees of $636 to $763, depending on the lender and the location of the home to which the mortgage is tied. The VA assumed base fee is capped at $250 to $300, depending on the lender type, plus a regional variation of $386 to $463, designed to account for regional differences in the costs borne by the lender in underwriting, processing and closing assumptions.
Regional differences in VA loan assumptions apply to four geographic areas:
- West: $463
- Northeast: $409
- South: $404
- Midwest: $386
In December, the VA warned service members of their obligation to promptly address assumptions and outlined penalties for violations.
Now that servicers have more incentive to deal with FHA assumptions, “I expect that assumption deals will close faster and more buyers will be able to afford the mortgage,” Singer said.
With interest rates more than double what they were during the pandemic, Roam and competitors like FHA Pro and AssumeList are marketing affordable mortgages as affordability tools. Sellers who are still paying off their government-backed Federal Housing Administration (FHA), Virginia (VA) or U.S. Department of Agriculture (USDA) mortgages can offer qualified buyers the option to assume the loan at the rate they originally obtained balance.
Roam estimates that a borrower taking out a $500,000 mortgage at 2% instead of paying 7.5% on a new mortgage would save about $1,650 per month.
But in addition to servicer and loan origination fees, buyers who want to take on a mortgage will need to reimburse the seller for any equity they’ve built up in the home, so they often need to take out a second mortgage.
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