The Biden administration is relaxing federal mortgage rules to give student loan borrowers a better chance of being approved for a mortgage.
Federal Housing Administration (FHA) ad changes to its student loan calculations that should make it easier for student loan borrowers to get mortgage approval. The policy change is to remove the current requirement that FHA mortgage lenders calculate a borrower’s monthly student loan payment as 1% of their student loan balance for loans that are not fully paid. amortized or in the process of being reimbursed. This includes borrowers who are subject to an approved deferment or forbearance, or who are only required to make relatively low payments under an income-based repayment plan.
For example, a federal student loan borrower with an outstanding balance of $ 100,000, an income of $ 60,000 per year, and a family of 3 may only have a monthly payment of $ 245 per month under repayment plans approved based on income. But an FSA-backed mortgage lender may “assume” that the borrower actually has a payment of $ 1,000 per month because of the FHA’s long-standing underwriting rules that apply to 1% of the outstanding balance. This could prevent the borrower from getting a mortgage, depending on their overall credit profile and other debt obligations.
The new FHA policy will allow mortgage lenders to use the actual amount of a borrower’s monthly student loan payment, even if it is less than the traditional amount of 1% of the total balance. And if a student loan borrower’s calculated payment is $ 0 (which is possible under an income-based repayment plan), the mortgage lender will automatically apply 0.5% of the outstanding loan balance. student as deemed payment, rather than 1%.
“Homeownership is the cornerstone of the American dream and the best way to build generational wealth. I am proud that the FHA is taking action to allow borrowers with student loan debt to qualify for a federally insured mortgage, ”said Marcia L. Fudge, Secretary of Housing and Urban Development. declaration. “This new policy will make a big difference to individuals in our country and is another step in our mandate to promote equity and homeownership opportunities.
Advocates hailed the policy change as an important step in tackling racial inequalities. According to National Center for Education Statistics (NCES), 77.7% of Black Students Borrow Federal Student Loans to Pay for Graduate Education – significantly higher than the national average for all students (60%) and for white students (57.5%). Black students are also more likely frequenting for-profit institutions, which are often accused of deceptive and predatory conduct.
“It is essential that we reflect on all the ways in which racial discrimination is woven into our society, especially in our housing system. Too many generations of black families are deprived of the opportunity to secure an affordable mortgage, own their own home and create wealth to pass on to their children and grandchildren, ”said U.S. Senator Sherrod Brown (D -OH), chair of the US Senate Committee on Banking, Housing, and Urban Affairs. “I applaud HUD and Secretary Fudge for taking this first step to address inequities in our housing system and look forward to continuing to work together to increase homeownership and address the disparities.”
The announcement comes as the Biden administration begins to hold hearings on possible proposals to revamp key federal student loan repayment and forgiveness programs, such as income-tested repayment plans and remission. public service loans.
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