Written By: Joel Palmer, Op-Ed Writer
Mortgage processors and underwriters representing banks may be working on more FHA loans in the near future.
Last week, the Federal Housing Administration (FHA) released proposed revisions to its lender certification requirements. The goal of the move is to get more banks to originate FHA loans.
“FHA believes the changes will facilitate more competition in the market and result in more financing choices for borrowers, especially first-time and minority homebuyers,” FHA said in its release.
In the years after the financial crisis, FHA fined banks billions of dollars for misusing the program. As a result, banks got out of FHA lending and left it to nonbank mortgage companies. According to FHA, banks account for only 13 percent of FHA’s origination volume. It was 44 percent in 2010.
"It has become clear that our lending partners are seeking clarity and greater certainty when documenting compliance with FHA requirements," said Acting Deputy Secretary and FHA Commissioner Brian Montgomery. "We are proposing a new, more transparent set of requirements that will preserve our enforcement authority. We anticipate that this will encourage more lender participation in FHA business, thus increasing competition in the market and resulting in greater choices for borrowers."
Increasing competition in the housing finance market was a goal of The President’s Memorandum on Federal Housing Finance Reform released in March. The memo directed the Treasury Secretary to develop a plan for administrative and legislative reforms to achieve a number of housing reform goals, including a directive to diversify the network of FHA-approved lenders through "increased participation by registered depository institutions.”
FHA has proposed changes to its loan-level and annual lender-level certifications. In addition, FHA is revising its 'defect taxonomy' to clarify the various loan defect categories and how the agency weighs the severity of each defect.
Proposed changes to the loan-level certifications are intended to reorganize Form 92900-A, the Addendum to Uniform Residential Loan Application in a “logical, easy to read, and understandable format and to eliminate duplicative information collected elsewhere.”
Changes to annual lender certifications are meant to better align them with National Housing Act standards. The revisions would delete three sections and modify another three sections.
FHA’s Defect Taxonomy was created in 2015 and implemented through the Loan Review System in 2017. Version 2 will provide more clarity and transparency into FHA's existing loan-level quality assurance processes.
Proposed changes to the Defect Taxonomy include:
•Updated Severity Tier definitions
•Potential remedies that align each Severity Tier
•Revised sources and causes in certain defect areas
•New defect areas for servicing loan reviews
•HUD policy references.
“We appreciate the increased clarity, transparency, and certainty these changes will bring to the program,” said Robert Broeksmit, CEO of the Mortgage Bankers Association. “We are confident that the changes will lead to more lenders participating fully in the FHA program, making these mortgages available to even more Americans - particularly first-time homebuyers.”
FHA is accepting feedback on the proposed changes through June 8, 2019.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.