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FHA Cracks Down On Lenders

Posted on January 21 By Justin McHood

Recently, FHA has decided that they want to have more oversight and regulatory authority for FHA approved lenders. Yesterday, they released a statement declaring that HUD will be focusing more on regulatory authority when it comes to FHA lenders - in addition to some of the current HUD investigations that are currently being held.

According to the press release, here are some of the regulatory oversight changes coming soon to the FHA approved lender program:

  • Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.

    • This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
  • Enhance monitoring of lender performance and compliance with FHA guidelines and standards.

    • Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
    • This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
  • Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process

    • Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
  • HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:

    • Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
    • Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches
In addition to raising the net worth requirement for lenders and potentially changing the way that loan officers are allowed to be compensated - it appears as if the entire landscape of the origination business is changing and with the vast amount of changes happening, one thing is clear - no one is sure what unintended consequences there will be.

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