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FHA looks to update confusing compliance rules to attract banks

Looking to attract more banks to its mortgage programs, the Federal Housing Administration (FHA) has proposed some clarifications to its compliance regulations.

FHALoanOn Thursday, the agency announced proposed changes to its annual and loan-level lender-certification requirements, including new language to shed light on what makes a loan defective and how to address such issues. Obfuscation in those areas has stoked fears of severe penalties and fueled the dwindling number of banks taking part in the FHA’s single-family mortgage-insurance programs.

Banks today make up only 13 percent of the FHA’s origination volume, down from 44 percent in 2010. And although many nonbank lenders have stepped in to fill the void, the U.S. Department of Housing and Urban Development (HUD), which oversees the FHA, is looking to kick-start competition and diversity in its lender pool by making it easier for banks to participate.

Part of the solution, acting deputy secretary and FHA commissioner Brian Montgomery said in a conference call, was to cleanse the “jumbled legalese” in the FHA’s current compliance rules. Revisions to the organization’s defect taxonomy are designed to better spell out defective-loan categories, as well as the severity of any disciplinary actions associated with each violation.

“It has become clear that our lending partners are seeking clarity and greater certainty when documenting compliance with FHA requirements,” Montgomery said. “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.”

HUD secretary Ben Carson added that improving the “clarity, certainty and transparency of our regulations and requirements” has been a “key focus” at HUD.

Joe Pigg, senior vice president of mortgage finance for the American Bankers Association, acknowledged HUD for its attention to bankers' interests.

“ABA appreciates HUD and FHA’s effort to address concerns that we and our member banks have raised about impediments to working with the program," he said. “FHA can be a powerful tool for expanding homeownership and we’re grateful for the administration’s consideration.” 

Robert Broeksmit, president and CEO of the Mortgage Bankers Association, was optimistic that the revisions will lead to more lenders dipping their toes into FHA waters.

“MBA commends FHA for proposing improvements to its certifications and defect taxonomy,” he said. “We appreciate the increased clarity, transparency and certainty these changes will bring to the program. 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. We look forward to reviewing the revisions in detail and presenting our comments.”



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