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Proposed FHA Loan Changes Would Increase Lender Scrutiny, Protect Customers

November 2, 2010

In October 2010, the U.S. Department of Housing and Urban Development
proposed tighter regulations that would require lenders to reimburse the Federal Housing Administration for claims on FHA home loans that don’t meet FHA requirements. The proposed legislation is part of a move initiated at the start of 2010 to change FHA policy in order to protect the FHA loan program and hold banks more accountable for the FHA loans they approve.

“It’s important that our expectations are crystal clear,” said FHA Commissioner David H. Stevens in an October press release. “We need to clarify which circumstances we’ll require indemnification and the level of loan performance we expect lenders to maintain.”

If passed, the new guidelines would hold lenders accountable for issuing loans that don’t meet FHA requirements. According to an FHA press release, “HUD seeks to force indemnification for ‘serious and material’ violations of FHA origination requirements such that the mortgage never should have been endorsed by the mortgagee in the first place just as FHA would not have insured the mortgage on its own.”

The circumstances addressed by these new rules include failure by the lender to analyze a potential FHA borrower’s income, creditworthiness and employment history. The lender would also be held accountable if they don’t verify the sources of down payment and closing cost payments.

But not all the rules are designed to protect the FHA–the proposed guidelines would also take lenders to task for not addressing deficiencies uncovered in the property appraisal to include health and safety issues, structural integrity and other concerns.

At press time, the new proposed guidelines have not been made official, but they do fall in line with a set of policy changes announced earlier in the year.

Joe Wallace - Staff Writer

By Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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