Magazine article American Banker

FHA Fleshes out Quality Control Plans, Counseling Incentive

Magazine article American Banker

FHA Fleshes out Quality Control Plans, Counseling Incentive

Article excerpt

Byline: Marc Hochstein

The Federal Housing Administration gave more details Tuesday about a program to reward borrowers who get counseling and a quality assurance initiative meant to ease lenders' fears about accommodating riskier borrowers.

The update on the agency's efforts to expand access to mortgage credit came a day after Fannie Mae and Freddie Mac said they would exempt more loans from buyback demands. Federal Housing Finance Agency Director Mel Watt talked about ways to assuage lenders' concerns about repurchase liabilities in his first major speech Tuesday.

In the "blueprint" published Tuesday, the FHA said it is "developing a new methodology for evaluating underwriting defects" that could require a lender to indemnify the agency against losses. "The new criteria will be more descriptive -- identifying a limited number of specific defects, their related causes, and levels of severity." This should give lenders a better handle on the risk posed by any given flaw in a loan file, the FHA said.

"Lenders must be able to quantify the risk of making a mortgage loan," the FHA said. "Lenders tell us they add credit overlays" -- requirements above and beyond agency guidelines -- "for a variety of reasons. Fear of back-end enforcement actions is often cited."

The FHA's Homeowners Armed with Knowledge program, or Hawk, which Commissioner Carol Galante described in April, would reduce upfront mortgage insurance premiums by 50 basis points and annual premiums by 10 basis points if borrowers get counseling, the agency said Tuesday. …

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