FHA bids to clarify mortgage origination rules



The Federal Housing Adminstration is trying to boost the mortgage industry by clarifying lending certification requirements in order to create more choices for borrowers, especially first-time buyers and those from ethnic minorities.

The announcement comes at a time when the number of banks that participate in the FHA’s single-family mortgage insurance program is declining. HousingWire reports that banks contributed just 13% of the organization’s mortgage origination volume in the last year, down from 44% in 2010. One reason for this is that banks are increasingly worried about the strict penalties associated with such loans due to sketchy certification requirements. Even a minor error could expose banks to big fines, HousingWire said.

So last week the FHA announced new proposed rule changes that would clarify its loan-level and annual lender-level certifications on compliance documents from lenders, which it hoped would ease some banks’ compliance concerns. Among the proposed changes, the FHA clarified what constitutes a defective loan and how problems can be remedied.

“It has become clear that our lending partners are seeking clarity and greater certainty when documenting compliance with FHA requirements,” Brian Montgomery, acting deputy secretary of the U.S. Department of Housing & Urban Development and FHA commissioner, told HousingWire. “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.”

“Successfully addressing these issues will give lenders more confidence in participating in the FHA program and enable participating lenders to better serve homebuyers seeking an FHA loan,” Ed DeMarco, president of the Housing Policy Council, told HousingWire.

Before the rules are finalized, the FHA is accepting public comment on the proposed changes over the next 30 days.

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