FHA and VA Fee Update: Increased Allowances for Assumable Mortgages

The Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) have recently updated their policies regarding fees associated with assumable mortgage transactions. These changes are designed to better align the allowable fees with the current market conditions and to facilitate more efficient processing of assumable mortgages by loan servicers.

FHA Doubles Allowable Fees for Assumable Mortgages

In a May 20, 2024 update to the Single Family Housing Policy Handbook 4000.1, the FHA announced a significant increase in the processing fee that lenders can charge borrowers assuming an existing FHA-insured mortgage. The maximum allowable fee has been doubled from $900 to $1,800.

Compensating Servicers for Processing Costs

The fee increase is intended to compensate servicers for the costs associated with processing assumptions at a rate that is more appropriate for today’s market. The FHA last adjusted the reasonable and customary fee mortgagees could charge borrowers assuming an FHA-insured mortgage in 2016.

Why the Increase Matters

The increased allowable fees are crucial for several reasons:

1. Incentivizing servicers to prioritize assumption requests
2. Ensuring that servicers are adequately compensated for the time and effort required to process assumptions
3. Facilitating faster processing times for assumable mortgages

Benefits for Homebuyers and Sellers

The increased allowable fees may benefit both homebuyers and sellers in the current high-interest rate environment. Assumable mortgages provide an opportunity for:

• Sellers with FHA mortgages who are struggling to find buyers due to high interest rates
• Homebuyers who are sidelined due to high monthly payments on new mortgages

By allowing servicers to charge higher fees when processing an FHA assumable mortgage, the FHA aims to incentivize lenders to prioritize and expedite these transactions.

Potential Savings for Homebuyers

Assuming an existing FHA mortgage with a lower interest rate can result in significant savings for homebuyers. For example, a buyer assuming a $400,000 mortgage at a 3% interest rate instead of obtaining a new mortgage at a 7% rate would save over $900 per month in interest.

VA Updates Assumption Processing Fees with Locality Variance

With VA Circular 26-24-5, The Department of Veterans Affairs has also made changes to the fees lenders can charge when processing VA loan assumptions. While the base processing fee remains $250 for servicers without automatic underwriting authority and $300 for servicers with automatic authority, the VA has introduced a locality variance that can be added to the processing of all VA assumptions. Note: the base

Locality Variance Amounts

The VA Assumption Locality Variance amounts are as follows:

Region	Amount
Northeast	$409
Midwest	$386
South	$404
West	$463

The locality variance is designed to account for regional differences in the costs incurred by lenders when underwriting, processing, and closing assumptions.

Geographic Regions Defined

The VA has defined the geographic regions for the locality variance as follows:

• Northeast: Connecticut, Maine, Massachusetts, New Hampshire, Vermont, New Jersey, New York, Pennsylvania, Rhode Island
• Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin
• South: Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, West Virginia
• West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming

Recognizing Regional Cost Differences

The introduction of the locality variance acknowledges that the costs associated with processing VA loan assumptions can vary significantly depending on the region. By providing a region-specific variance, the VA ensures that servicers are fairly compensated for their efforts, regardless of the property’s location.

Impact on the Assumable Mortgage Market

The changes implemented by both the FHA and the VA are expected to have a positive impact on the assumable mortgage market. By increasing the allowable fees for processing assumptions, these government agencies are acknowledging the time and effort required by servicers to facilitate these transactions.

Potential Benefits

1. Faster processing times for assumable loans
2. Increased willingness of servicers to prioritize assumption requests
3. More opportunities for homebuyers to access lower interest rates through assumptions
4. Improved marketability of homes with existing FHA or VA loans

Industry Reaction

The Community Home Lenders of America (CHLA) has welcomed the FHA’s decision to increase the allowable fees, stating that it is “crucial to allowing lenders to recoup their costs of a loan assumption, which can facilitate significant mortgage savings for homebuyers by using existing lower rate FHA mortgage loans.”

Similarly, industry experts believe that the VA’s locality variance will provide a more accurate representation of the costs associated with processing assumptions in different regions of the country.

Frequently Asked Questions (FAQ)

How much can mortgagees charge for processing an FHA loan assumption?

As of the recent update to the Single Family Housing Policy Handbook 4000.1, mortgagees can charge up to $1,800 for processing an FHA loan assumption. This is a significant increase from the previous maximum of $900.

What is the base processing fee for VA loan assumptions?

The base assumption fee for VA loans is $250 for servicers without automatic underwriting authority and $300 for servicers with automatic authority.

What is the purpose of the VA Assumption Locality Variance?

The VA Assumption Locality Variance is designed to account for regional differences in the costs incurred by lenders when underwriting, processing, and closing assumptions. The variance amounts range from $386 to $463, depending on the geographic region.

How can assumable mortgage platforms like AssumeList help buyers, sellers, and servicers?

Assumable mortgage platforms like AssumeList provide a centralized marketplace for assumable loans, matching buyers with sellers who have existing FHA, VA, or USDA loans. They also offer tools and resources to educate users about the benefits and process of assumable loans, helping to streamline the entire transaction.

Why are the recent fee updates important for the assumable mortgage market?

The recent updates to allowable fees for FHA and VA loan assumptions acknowledge the time and effort required by servicers to facilitate these transactions. By providing increased compensation and incentives, these changes are expected to lead to faster processing times and increased willingness among servicers to prioritize assumption requests.

Final Thoughts

The FHA and VA’s recent fee updates are a positive development for the assumable mortgage market, providing much-needed support and incentives for servicers to prioritize and expedite these transactions. As interest rates remain high, assumable loans will continue to be a valuable option for buyers and sellers alike.

By leveraging the expertise and technology of assumable mortgage platforms like AssumeList, all parties involved can navigate the assumption process more efficiently and capitalize on the potential benefits of these unique financing options. Staying informed about policy changes and utilizing the resources available through these platforms will be key to success in today’s evolving housing market.