There could be more FHA loans to go around
Lenders who have previously shied away from making FHA-insured loans may now give them a second look.
The Federal Housing Administration, or FHA, released a new certification that would allow lenders to sidestep some penalties for errors that happen during the mortgage underwriting process.
Lenders would only be held accountable for mistakes that would have changed the loan approval decision.
“This important move makes it very clear that minor mistakes that do not affect the decision to approve a loan are not the focus of our compliance efforts,” Ed Golding, head of the FHA, says in a letter.
The revised certification also allows lenders to verify “what they know to be true to the best of their knowledge,” meaning that lenders aren’t liable for fraud or other mishaps by third parties that the lender didn’t know about.
Looser grip on credit?
Leaders in the housing industry seem to be mostly welcoming the changes with open arms.
“The FHA is a critical source of mortgage credit for America’s families, particularly first-time homebuyers and buyers of color, and this announcement should pave the way for more lender participation in the FHA insurance program,” Sarah Edelman, director of housing policy at the Center for American Progress, says in a statement.
Mortgage Bankers Association president and CEO David Stevens acknowledged the FHA’s efforts to clarify certification requirements, but advised lenders to exercise caution.
“Individual lenders will need to review the new certifications, assess the legal and reputational risks associated with FHA lending, and determine whether the new language provides sufficient protection to allow them to responsibly expand liquidity for FHA lending.”
