The Department of Housing and Urban Development proposed new regulations that strengthen its authority to force lenders to reimburse the Federal Housing Administration for insurance claims paid on mortgages that do not meet the agency’s guidelines.
”It’s important that our expectations are crystal clear,” said FHA Commissioner David H. Stevens. “We need to clarify which circumstances we’ll require indemnification and the level of loan performance we expect lenders to maintain.”
According to HUD, the agency seeks to force indemnification for ‘serious and material’ violations of FHA origination requirements such that the mortgage never should have been endorsed by the mortgagee in the first place just as FHA would not have insured the mortgage on its own.
HUD is also proposing to tighten performance standards of mortgagees with delegated lender insurance authority to maintain an acceptable claim and default rate. According to the proposal, all new unconditional direct endorsement lenders who have the authority to self-insure mortgages must demonstrate a default and claim rate at or below 150 percent for the previous two years and would apply to the states the lender does business.
By comparing claim rates for individual states rather than national averages, HUD believes it will accurately reflect mortgagee performance by evaluating each mortgagee based on its actual area of operations. FHA will continually monitor lender performance rather than conduct an annual review of each “Lender Insurance” mortgagee.
Finally, the FHA will consider the two-year default and claim performance of either entity in the case of acquisition or merger without requiring these entities to seek a waiver. FHA, at its own discretion (without any judicial or administrative action) also clarifies that it has the authority to immediately withdraw a lender’s ability to self-insure mortgage loans.