FHA Re-issues Controversial Loan Certification Plan

John Jordan | September 2015

WASHINGTON—The Federal Housing Administration has re-issued a controversial loan certification proposal and is seeking an additional 30-day comment period on the plan.

Mortgage industry groups contend the new loan certification proposal will make it easier for federal authorities to sue lenders for when they file claims over agency-insured loans that go into default.

Edward Golding, the principal deputy assistant secretary for the Department of Housing and Urban Development, told reporters recently that FHA is releasing the plan for an additional 30-day comment period, according to a report in the National Mortgage News.

“From the beginning, our goal has been to develop new certifications that clarify the lender’s role in verifying borrower’s information and to use common sense when deciding to take corrective action against lenders for making minor mistakes that do not affect the insurability of the mortgages,” Golding said.

The proposal reportedly includes a provision that requires lenders to certify the completion of a pre-endorsement review of all loans and that no deficiencies or defects were found that would render the loans ineligible for FHA insurance.

David H. Stevens, president and CEO of the Mortgage Bankers Association, in a statement in response to the new FHA’s loan certification requirements, stated, “MBA appreciates FHA’s efforts to provide the industry the opportunity to comment on the revised certifications. As the entry point for homeownership for so many first time homebuyers but also borrowers who often have higher risk, clarity and confidence for lenders are critical concerns. The language in the certification, however, lacks clarity as to the insurability of a loan and doesn’t embody a reasonable diligence standard for FHA underwriters, address the significance of any errors in terms of risk to the FHA, or allow for an opportunity for lenders to correct any mistakes, regardless of how minor they may be.”

He continued, “This lack of clarity continues to leave the door open to possible enforcement actions, and also encourages federal agencies, other than FHA, to take action against lenders. Absent clarity, some lenders may continue to re-evaluate which borrowers they are willing to extend FHA backed lending to and at what prices.”

John Jordan
Editor, Real Estate In-Depth