Rule Change Should Push More Large Lenders To Offer FHA Loans
Strict FHA lending rules scared lenders and many stopped offering the loans altogether. But that may change because HUD and DOJ have agreed to ease up a bit. The change comes at an opportune time since a separate rule will allow more condo buyers to use an FHA loan.
WASHINGTON – U.S. Housing and Urban Development (HUD) Secretary Ben Carson and U.S. Attorney General William Barr issued a Memorandum of Understanding between the two agencies that updates guidance on appropriate use of the False Claims Act (FCA) for violations by Federal Housing Administration (FHA) lenders.
Fear of the FCA caused a number of larger lenders to stop offering FHA loans altogether.
“This agreement clearly outlines our FHA mortgage program requirements so they do not impede or discourage lenders from offering affordable FHA-insured loans to credit-worthy borrowers,” says Carson. He says the change makes it clear to “all responsible lenders that FHA’s mortgage program is a program they should participate in.”
However, an easing of the rules does not mean “irresponsible or fraudulent lenders who defraud borrowers and taxpayers” will be tolerated, Carson adds.
“DOJ and HUD will work together to determine when HUD’s administrative remedies are sufficient, or other recourse is appropriate, to address harm to the borrower, the taxpayer, or the government,” adds Barr.
Shortly after the announcement, the National Association of Realtors® (NAR) issued a statement commending HUD and DOJ for the agreement.
“NAR believes this change will help more consumers access low down payment loans and ensure a wide range of financial institutions will offer Federal Housing Administration-backed loans in the future, which is particularly important as new FHA condominium loan policies have created additional opportunities for potential homebuyers across the country,” says NAR President John Smaby.
For decades, FHA has been a top loan product for the nation’s first-time homebuyers, which currently hold about 80% of all FHA loans, and about a third of FHA loans are made to minority borrowers. However, the tighter rules had an impact on FHA borrowing. Depository institutions originate less than 14% of FHA-insured mortgages today; in 2010, they were originating 45%.
As larger lenders study the new rules, HUD, DOJ and NAR hope more will decide that it’s in their best interest to again offer more FHA loans.
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