Government LendingMortgage

Nonbanks deliver a wishlist to the FHA

Lenders want the FHA to streamline its servicing guidelines and make changes to its condo rules

A coalition of independent mortgage banks want the Federal Housing Administration (FHA) to take steps it says would significantly improve access to credit for underserved borrowers.

The Community Home Lenders Association (CHLA), backed by 41 IMBs, sent a letter urging the FHA to streamline its servicing guidelines, increase permissible lender fees for executing an assumption of an FHA loan, and make changes to FHA’s condo rules.

This is the second letter sent to the FHA by the 41 IMBs, which includes South Carolina-based Movement MortgageCherry Creek Mortgage, Texas-based Thrive Mortgage and Draper & Kramer Mortgage.

Two weeks ago the same group urged the administration to cut mortgage insurance premiums by 30 basis points to .55% and get rid of its life of loan premium policy.

The FHA did not immediately respond to a request for comment.

In urging the administration to make changes to its servicing guidelines, the trade group said that FHA’s debenture interest servicing penalties are too harsh compared to other housing agencies. The letter notes that if a servicer misses a servicing deadline on an FHA loan in default, interest is automatically curtailed on that loan.

The penalty “is wildly disproportionate to the financial harm done to the FHA by servicers missing a deadline for a short period,” the letter said.

The CHLA said that the administration should model the penalty for missing a deadline after Fannie Mae and Freddie Mac, “which use milestones to track progress and do not assess penalties until the total allotted period.”

Stakeholders in the industry have long argued that streamlining FHA’s servicing guidelines could convince depository institutions to return to servicing FHA loans. (After the financial crises, depositories pulled out of originating and servicing FHA loans after they were slammed with a flurry of lawsuits brought under the False Claims Act.)

The trade group also wants the FHA to raise the permissible lender fee cap, which it dubbed as “arbitrary and wholly inadequate” to a lender fee of up to 2% plus a $500 underwriting fee. According to the CHLA, the current FHA cap of $900 discourages lenders from carrying out a loan assumption on behalf of a buyer.

Additionally, lenders want the administration to streamline the process for approval of condominium projects.

The letter said that streamlining the process does not require further rule making and instead could be solved through operational and technology-based changes that make the process more efficient.

“Action is needed to streamline and improve the actual approval process for individual
condominiums, in order to meet the full potential of condos as an affordable homeownership option,” the letter said.

In response to CHLA’s original letter in mid-May urging the FHA to cut premiums, the Department of Housing and Urban Development said it continues to monitor seriously delinquent loans in its portfolio as it weighs premium pricing, and that to date, they have been “pleased.”

“We have taken the time in the first part of the current calendar year to evaluate outcomes for delinquent borrowers as a component of our review of current mortgage insurance premium pricing. We will continue to be judicious about if, when, and how we consider changes to FHA’s mortgage insurance premiums,” a HUD spokesperson said.

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