|WASHINGTON -- The Federal Housing Administration's commissioner told a standing-room-only audience of mortgage brokers last week that the housing agency wants to "dig deeper into the borrower pool."
The National Housing Act must be amended to allow the government agency the flexibility to offer better products, FHA Commissioner Brian Montgomery said in a speech to the National Association of Mortgage Brokers.
The group was holding its Legislative and Regulatory Conference in Washington, D.C.
Montgomery said the agency is proposing legislation that will address the biggest barriers posed by FHA financing by asking for an increase in FHA loan limits, eliminating the minimum cash investment, modifying the agency's "complicated" downpayment formula and making changes to its premium structure that will allow FHA to "dig deeper into the borrower pool."
Montgomery said the agency has already implemented a new policy on refinancing, allowing cash out refinances up to 95 percent loan-to-value, an increase from the previous 85 percent loan-to-value limit.
He told the full audience that FHA implemented in January significant changes to its appraisal requirements by "moving away from our previous onerous repair and inspection requirements" to adopting industry standards. Repairs and inspections are now called for only when defects are structural or affect the health and safety of the occupant.
"We no longer require repairs for cosmetic items such as a missing handrail or cracked windowpane," he said. Termite and flat roof inspections are now required only in areas where they are customary.
In the past, all FHA borrowers, regardless of location, were required to obtain termite and flat roof inspections for the house they were interested in purchasing through the agency.
Montgomery said FHA also recently launched a streamlined 203(k) program that can be used for simple remodeling or basic projects that won't affect the property's structure such as replacing shag carpeting, putting on a new roof or updating a kitchen. Up to $35,000 can be financed into the mortgage to provide for the repairs.
FHA's operating procedures have been changed to make them more compatible with conventional loan processes, he said. The endorsement process has been retooled to make it less cumbersome for lenders to do business with FHA. For example, lender insurance allows lenders to self-endorse without pre-endorsement from FHA.
In a question-and-answer period that followed Montgomery's speech, Margaret Burns, director of the Office of Single Family Program Development and James Beavers, deputy director of the Office of Single Family Program Development, answered the audience's questions.
Currently, FHA requires mortgage brokers to submit annual financial audits to directly participate in the FHA program. NAMB has suggested that FHA replace the annual audit for mortgage broker participation in the FHA program with a surety bond payable to FHA. NAMB has said that nearly every state has implemented bonding rather than an audit for licensing and that the states have found bonding to be the preferred method of protecting citizens.
Burns said FHA has discussed eliminating and "there is some consideration" for eliminating FHA's bond requirement for originating FHA loans. Thousands of brokers want to offer FHA loans but can't because of the requirement, Joe Falk, the chairman of NAMB's Government Affairs Committee commented.
Beavers said the "notorious" MCAW form -- the Mortgage Credit Analysis Function -- will disappear this year and be replaced with a form similar to what's being used in the industry. He explained that FHA is waiting for the Office of Management and Budget to sign off on the move.
Montgomery said the changes -- that he described as "long overdue" -- are needed to stem the decline in FHA's share of business and to recapture the type of borrowers who are now using more "exotic products" to finance their home purchases.