home subscribe advertise reprints e-mail help RSS about us LOG IN

Mortgage News

 

Mortgage News

HOT Topics

production

servicing

compliance

legal

fraud

secondary

jobs

appraisal

site map

www.loan-academy.com/
twitter linkedin
facebook google+
Search:

Mortgage News

News by Subject
Complete list of specialty news sections.

Purchase Subscription
Subscribe to MortgageDaily.com and get immediate access to all news, statistics and archives.

Mortgage Advertising
Reach mortgage executives, loan originators and other people tied to mortgage industry.

Consumer Mortgage News
Free mortgage news for prospective borrowers.

Mortgage Newsletter
Free e-mail newsletter with the latest headlines from MortgageDaily.com.

Mortgage News Reprints
Put entire MortgageDaily.com stories in your online or printed newsletter or publication.

Mortgage Feedget RSS code
Condensed MortgageDaily.com stories free on your Web site or for your RSS reader.

News Archives
Archive of MortgageDaily.com stories by month going back to 1999.

Press Releases
Reports and announcements from MortgageDaily.com.

Mortgage Statistics
Data and statistics for real estate finance.

Mortgage Directories
Directories of lenders, branch operators and mortgage service providers.

Mortgage Graphs
Directories of lenders, branch operators and mortgage service providers.

FHA News | Government Resources | M o r t g a g e e Letters | FHA Statistics
FHA, VA and HECM mortgage news. HUD and G i n n i e news also. Originations, servicing and FHA approval.



FHA Risks Questioned

GAO report looks at new program risks

March 24, 2005

By PAULA PARISOT


A recent government study of the FHA mortgage loan program suggests loan-to-value is a key factor in the likelihood of default, and that any new, higher risk programs should be limited in availability and enhanced by sharing risk.

The 62-page U.S. Government Accountability Office report, prompted by a proposal to eliminate the borrower contribution requirement for the Federal Housing Administration-insured mortgages, found that the FHA might benefit from risk management tools, new loan program guidelines and practices currently used by conventional mortgage companies.

The report said to lower the risk level of new, low or no down payment loan programs, FHA would need to incorporate some of the practices and framework other mortgage institutions use to manage the risks associated with these new or modified loan products.

Examples of this framework include; imposed limits on the volume of new or significantly modified products; required additional credit enhancements, such as higher insurance coverage; and stricter underwriting, such as credit score thresholds.

FHA does sometimes use practices for limiting new product volume but usually does not pilot products on its own initiative, auditors said. The report stated that FHA officials "question the circumstances in which they can limit the availability of a program and told us they do not have the resources to manage programs with limited volumes."

The report also noted that FHA is authorized to require an additional credit enhancement by sharing risk through coinsurance but does not currently use this authority; and that FHA has imposed stricter underwriting criteria, but not the use of credit score thresholds.

A large amount of research GAO auditors reviewed indicated that credit score and LTV ratio were among the most important factors when estimating the risk level associated with individual mortgages, the report said.

The report said one credit score study showed an applicant with a credit score of 728 had a default probability of 1.26 percent while an applicant with a credit score of 642 was more than two times more likely to end up in default (3.41%).

And another report study found that the default rates for mortgages with an LTV ratio of about 95 percent were three to four times higher than those with an LTV of 90 to 95 percent.

The GAO report concluded that while credit score is an effective predictor of default, LTV remained an effective predictor of default and loans with low or no down payment carry the greatest risk. And without compensating measures such as PMI, increased risk monitoring and oversight in lenders, introducing a new FHA no down payment product would expose FHA to greater credit risk.

In response to its findings, GAO auditors advised Congress to consider limiting any new no down payment product it may authorize. It also recommended that HUD, "among other things, consider piloting new or changed products and that HUD establish a framework for when and how to pilot products.


Paula Parisot is a freelance writer for MortgageDaily.com. In addition to 4 years' journalism experience at other news publications, Paula has worked in the mortgage industry. Email Paula at: [email protected]



SUBSCRIBERS: Edit Subscription | Subscription Help | or call 214.521.1300

Subscribe Contact Us Site Map

Copyright © 2017 Mortgage Daily, D a l l a s
Subsribers Only:

AMC directory

ARM indexes

mortgage company directory

mortgage regulations

net branch directory

p r i c i n g engine directory

wholesale lender directory

More Mortgage News Resources (full site map):

advertising news

appraisal news

bank news

biggest lenders

commercial mortgage news

corporate mortgage news

credit news

FHA news

financial regulation news

foreclosure news

GSE news

jumbo mortgage news

interest rates

loan modification news

loan originator survey

LOS Newsletter

MBS

mortgage associations

mortgage-backed securities

mortgage books

mortgage brokers

mortgage compliance

mortgage conferences

mortgage directories

mortgage education

mortgage employment

mortgage employment index

mortgage executives

mortgage fraud

mortgage fraud blog

mortgage fraud local news

Mortgage Fraud Index

Mortgage Graveyard

mortgage insurance news

mortgage lawsuits

mortgage leads

mortgage lender ranking

mortgage licenses

mortgage litigation

Mortgage Litigation Index

Mortgage Market Index

mortgage mergers

mortgage news

mortgage politics

mortgage press releases

mortgage production

mortgage public relations

mortgage rates

mortgage servicing

mortgage statistics

mortgage technology

mortgage video

mortgage Webinars

net branch

net branch directory

nonprime news

origination news

originator tools

real estate news

refinance news

reverse mortgage news

secondary marketing

social media

servicing news

subprime news

wholesale lenders