The Department of Housing and Urban Development has proposed new rules that it hopes will clarify the current rules that dictate how lenders underwrite mortgages insured by the Federal Housing Administration.
FHA insured loans have allowed borrowers with lower credit scores to make lower down payments – something that isn't possible through most loans backed by conventional mortgage insurance.
Since January 2015, a number of large banks including Wells Fargo and J.P. Morgan either retreated from writing FHA loans or faced federal lawsuits alleging mistakes in their FHA loan underwriting and documentation, according to legal documents and media accounts.
HUD Deputy Assistant Secretary for Housing Edward Golding stressed to reporters on a Sept. 1 conference call that the agency is “neutral” on which lenders participate in the program as long as borrowers' needs are being met, Golding said.
He also stressed that the agency was not backing away from requiring high document verification standards during the underwriting process.
“None of the changes to either of the certifications hinder or undermine our ability to take action against bad actors,” Golding said. “We are confident that the proposed revisions continue to hold lenders appropriately accountable and provide greater clarity regarding our expectations of lenders. These changes also increase certainty for FHA lenders.”
The proposed changes include the requirement of a loan level certification that shows lenders have completed a pre-endorsement review of all loans and did not detect any default or deficiency that would make the loan ineligible for FHA insurance. HUD also added language clarifying that lending officers directly involved with the borrower and application cannot have participated in any prohibited activity.
Lenders would also have to certify they have not been barred or suspended by any federal department or agency, and that they have not been indicted or convicted of any wrong doing that would call into question their ability to responsibly participate in the FHA program, according to a fact sheet provided by HUD.
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