HUD Publishes New FHA Loan Certification Requirements

HUD yesterday posted proposed revisions to FHA loan and lender certifications to ensure that mortgagees comply with FHA policies designed to protect borrowers and to uphold quality lending practices.  

HUD re-released its Single-Family Loan Level Certification for an additional comment period of 30 days (http://www.gpo.gov/fdsys/pkg/FR-2015-09-01/pdf/2015-21515.pdf); and the Annual Certification for an initial comment period of 60 days (http://www.gpo.gov/fdsys/pkg/FR-2015-09-01/pdf/2015-21514.pdf).  

The Mortgage Bankers Association issued a statement noting the language, as currently written, lacks clarity as to the insurability of a loan and doesn’t embody a reasonable diligence standard for FHA underwriters, nor does it address the significance of any errors in terms of risk to FHA or allow for an opportunity for lenders to correct any mistakes, regardless of how minor they may be.  

HUD said the proposed revisions are also designed to provide greater clarity to lenders. “From the beginning, our goal has been to develop new certifications that clarify the lender’s role in verifying a borrower’s information and to use common sense when deciding to take corrective actions against lenders for making minor mistakes that do not affect the insurability of the mortgage,” HUD said. “The Administration has worked hard and will continue to put in place strong consumer protections and improvements in financial stability. We have never supported a return to the lending standards and origination practices that prevailed in the build-up to the crisis and nothing in the actions we are taking today would support such a notion.”  

Key proposals include:

• A provision in the Loan level certification that requires lenders to certify they have completed a pre-endorsement review of all loans and that no deficiencies or defects were revealed that would render the loan ineligible for FHA insurance.
• Added language to the loan level certification, requiring those directly involved with the borrower and the loan application to certify they have not participated in a prohibited activity. This proposal will be open for comment for 30 days.
• A provision to the Annual Lender Certification requiring lenders to certify they have not been barred or suspended by any Federal department or agency, and that they have not been indicted or convicted of any wrong doing that would call into question their ability to carry out the responsibilities of the FHA program.  

HUD insisted none of the changes to either of the certifications “hinder or undermine our ability to take action against bad actors. We are confident that the proposed revisions continue to hold lenders appropriately accountable and provide greater clarity regarding our expectations of lenders. These changes also increase certainty for FHA lenders.”  

MBA President and CEO David Stevens said while MBA appreciates FHA’s efforts to provide the industry the opportunity to comment on the revised certifications, the language in the certification 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.   

“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,” Stevens said. “Absent clarity, some lenders may continue to re-evaluate which borrowers they are willing to extend FHA backed lending to and at what prices.”  

Stevens said MBA will offer FHA further comment and will continue to work with various stakeholders, including FHA, “to foster a lending environment which protects consumers and encourages lenders to lend to responsible, qualified borrowers.”