K&L Gates: FHA Changes to Protect Insurance Fund Come at What Cost?

The recent audit of the Federal Housing Administration’s insurance fund has an “extremely sobering” effect on the Department of Housing and Urban Development as well as the mortgage industry in general, write K&L attorneys in a brief this week. While well intentioned, the changes spelled out will come at a cost, they say. 

“HUD is determined to protect the MMI Fund’s financial viability, while at the same time continue to meet the Program’s mission of making the dream of home ownership available to every American family,” write Phillip Schulman and Krista Cooley. “It is for that reason that HUD has announced a series of aggressive steps it intends to introduce to accomplish both of these worthy goals.”

The changes include raising premiums on FHA’s forward loans as well as changes to indemnification authority and underwriting standards. 

Further, changes to FHA’s Home Equity Conversion Mortgage Program have been discussed, including the FHA seeking legislative authority to make those changes. 

The changes mean well, K&L Gates writes, but with an unknown future and limits. 

“There is no question that if these initiatives are enacted, HUD will retain greater authority to protect the MMI Fund. Clearly, a worthwhile goal. But at what cost? Requiring borrowers to pay mortgage insurance premiums through the life of the loan and lenders to retain all fraud-related risk (including instances where the lender is clearly a victim of the fraud) will cause borrowers and lenders to carefully consider participation in the FHA insurance program,” the lawyers write. “One thing is for sure, expect significant changes in FHA origination and servicing requirements in the coming months.”

View the brief

Written by Elizabeth Ecker

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