What’s happening in the market – June 2014 (Part 1)
This is Part 1 of a 3 part Blog Series.
EXPANDING ACCESS TO HOME FINANCING
Mel Watt, the new Director of the Federal Housing Finance Agency (FHFA), announced that his main goal is to expand access to credit for home owners and home buyers. FHFA released the “Blueprint for Access,” which outlines the plans to expand credit to more borrowers who currently are unable to obtain, or qualify for home loans.
Under the Blueprint for Access, FHA launched the Homeowners Armed with Knowledge (HAWK) to reduce costs for homebuyers that attend housing counseling prior to qualifying for a new home loan.
The homebuyer can earn these savings by completing housing counseling before signing a contract to purchase a home. If the buyer completes the counseling, they will receive a 50 basis point reduction in the upfront FHA mortgage insurance premium and a 10 basis point reduction in the annual FHA MIP. If the buyer also chooses to participate in post-closing counseling and displays a track record of timely mortgage payments, it will bring even greater benefits. Under the program, participants would receive an additional 15 basis point reduction in annual MIP after two years with no serious delinquencies.
FHA also released information on the Quality Assurance Initiative which intends to encourage FHA lenders to lend to FHA guidelines and loosen up on individual lender overlays. Most lenders add credit overlays to reduce risk to the lender on more credit challenged borrowers.
FHA issued four ways it intends to do this:
Clarifying policy, which it will accomplish by releasing additional sections of its handbook this year. Throughout 2014, the FHA will publish several other sections of the handbook, including Doing Business with FHA, Oversight and Compliance, guidance for Appraisers, Condominium policies, and Servicing.
Enhancing its approach to assessing loan quality. The FHA is developing a new methodology for evaluating underwriting defects. The new criteria will be more descriptive, identifying a limited number of specific defects, their related causes, and levels of severity. Categorizing loan defect severity levels simplifies the compliance process as it allows lenders to better assess the risk posed by a specific deficiency.
Sampling a larger variety of loans. Currently, the FHA primarily selects higher-risk loans for review, i.e. loans evidencing payment challenges. The FHA acknowledges that this risk-based approach does not accurately reflect a lender’s overall underwriting quality as it is primarily focused on non-performing loans. Going forward, it plans to expand our evaluation of loans to include random sampling of performing loans closer to the time of endorsement.
Supplementing its lender performance metrics. The FHA currently calculates a Lender Compare Ratio for all lenders. This ratio is geographically based, comparing the rate of early defaults and claims for single-family loans in a geographic area to other mortgagees in the same area. The FHA plans to introduce an additional national lender performance metric. This new Supplemental Performance Metric will assess lender performance based on the lender’s default rate within three credit score bands and compare it to an FHA target rate, rather than to the lender’s peers. – (housingwire.com)
“We want to create an environment that encourages responsible behavior and provides clear rules of the road so lenders can originate loans without fear of unanticipated consequences. We want lenders to be able focus on the quality of their processes and lend to all qualified borrowers, “said Shaun Donovan, Secretary, U.S. Department of Housing and Urban Development. – (housingwire.com)