FHA greenlights higher fee for assumptions

The Federal Housing Administration on Monday markedly increased what lenders can charge when a new borrower assumes a loan. 

The FHA has doubled the maximum fee amount to $1,800 from $900 to address the cost of processing assumptions. Mortgage companies have identified the previous limit to the fee as a challenge.

The FHA, an arm of the Department of Housing and Urban Development that insures loans hasn't updated the "reasonable and customary" fee limits for assumptions since 2016, according to an information bulletin flagging single-family housing updates.

"It's a great step in the right direction because it factors in the work servicers have to do," Gagan Sharma, CEO at BSI Financial, said when asked about this at the Mortgage Bankers Association's Secondary and Capital Markets Association in New York.

Assumptions involving the transfer of a seller's mortgage to a buyer have been a boon to affordability in the current market given they can give a current borrower access to older, lower interest rates.

"This change is crucial to allowing lenders to recoup their costs of a loan assumption, which can facilitate significant mortgage savings for homebuyers," said Scott Olson, executive director of the Community Home Lenders of America, in a press release.

In addition to increasing the allowable maximum fee for assumptions, the FHA also added a separate requirement related to borrower language preferences for mortgage companies transferring servicing rights.

The FHA began requiring lenders to start using the same language preference form government-sponsored enterprises Fannie Mae and Freddie Mac do last year. Language preference is disclosed on what's known as the Supplemental Consumer Information Form.

The most common languages spoken at home other than English are Spanish, Chinese and Tagalog, according to the recent American Community Survey five-year estimates, which cover the period between 2018 and 2022.