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FHA Mortgagee Report

Recent FHA activity

Jan. 4, 2011

By SAM GARCIA MortgageDaily.com


Among some recent changes for Federal Housing Administration lenders are flood zone requirements, electronic certification and new disclosures for negative-equity borrowers. Government testimony and a trade group paper offer a few suggestions about improving FHA, including improving the government reverse mortgage program.

FHA is now requiring that
a flood zone determination is obtained on all properties, according to Mortgagee Letter 2010-43. Up to now, the agency had only been "strongly encouraging" such actions. FHA additionally is now consistent with the Coastal Barrier Resources Act because it won't provide mortgage insurance on properties located within designated coastal barriers.

Life-of-loan flood zone determinations are now required on all FHA-insured loans. The new flood requirements are effective on case numbers assigned on March 1 or later.

New information about implementation of new eligibility requirements was included in Mortgagee Letter 2010-38. The letter also discussed electronic annual certification requirements and procedures. (read Mortgagee Letter 2010-38)

Lenders were required to review the requirements of Section 1481 (d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act with negative-equity borrowers on all refinance cases assigned as of Sept. 19, 2010, Mortgagee Letter 2010-35 said. Borrowers signatures are required on a certification form, and mortgagees who fail to obtain a signed certification are committing a "serious violation."

In a Nov. 24 public filing, the Department of Housing and Urban Development noted that all licensed real estate brokers can participate as selling brokers in FHA's Management and Marketing III program. Brokers who list real-estate-owned properties, however, must be selected by HUD asset manager vendors. Six-percent commissions are split evenly between the buying and selling brokers.

A proposed rule by HUD provides more guidance about mortgagee indemnification on insurance claims when fraud, misrepresentation or failure to comply with FHA origination requirements has occurred. The rule would also require that mortgagees maintain their eligibility, which HUD will review on a continual basis.

The rule would revise the methodology used to determine acceptable claim and default rates and more accurately reflect mortgagee performance. It would also streamline the approval process for mortgagees that have undergone a corporate restructuring.

The FHA Mutual Mortgage Insurance Fund's capital ratio fell below the statutorily required minimum because of economic and market developments, according to testimony from the Government Accountability Office before the Senate Committee on Banking, Housing and Urban Affairs in September.

Mathew J. Scirè, GAO's director f
inancial markets and community investment, testified that HUD should require FHA's actuarial review contractor to use "stochastic simulation of future economic conditions to estimate the fund's capital ratio." Next, HUD should include analysis results in FHA's annual report to Congress. GAO also wants a minimum time frame established for restoring the capital ratio.

The Mortgage Bankers Association recently issued a paper, The Future of the Federal Housing Administration and the Government National Mortgage Association. The report was authored by MBA Council on the Future of FHA and Ginnie Mae, which convened in November 2009.

Among the council's recommendations were to provide funding for FHA staffing and technology. The paper also called for a review of possible changes to maximum FHA limits, the ability to raise FHA premiums and a stronger home-equity conversion mortgage program.

At Ginnie Mae, the council recommends appropriate staff levels, a modification of the policy on advance funding facilities and clarification about HECM mortgage-backed securities issuer criteria. The trade group also wants to maintain Ginnie's exemption from the Credit Reform Act of 1990.

American Enterprise Institute Senior Fellow Peter J. Wallison and Resident Fellow Edward J. Pinto recently wrote that the Dodd-Frank Act enables the president to place FHA in the same position as Fannie Mae and Freddie Mac before they failed. While Fannie and Freddie were required by Congress in 1992 to compete with FHA for high-risk loans, Dodd-Frank reportedly puts FHA at risk now.

"While everyone has been watching Fannie and Freddie, the administration has quietly shifted most federal high-risk mortgage initiatives to FHA, the government's original subprime lender," the two wrote. "The Dodd-Frank Act needs significant amendment, so that it applies quality standards to FHA and other government agencies."

Last year, TexasLending.com announced that it was recognized by HUD as one of the top-five FHA lenders in the Dallas-Fort Worth area.


Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com in 2000.

e-mail:
[email protected]


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