MBA Asks FHA for Additional Clarity, Guidance on FHA Handbook
The Mortgage Bankers Association, in a letter this week to FHA, asked for a number of technical clarifications and enhanced guidance to the FHA Single-Family Housing Policy Handbook.
The letter to FHA Commissioner Brian Montgomery includes a list of loan production issues related to FHA requirements compiled by MBA following ongoing discussions with MBA members and other stakeholders.
MBA identified the following issues as priorities:
Third-Party Underwriting and Vendor Verification of Borrower Income, Employment and Assets
MBA said FHA has not affirmatively taken a stance as to whether it accepts third-party underwriting recommendations or third-party vendor systems used to verify borrowers’ income, employment, and assets. “As a result, lenders are hesitant to utilize such resources when originating FHA-insured loans,” the letter said. MBA recommended HUD provide “clear guidance” on the acceptance of third-party underwriting and vendor verification of borrowers’ income, employment and assets, as well as the requirements and standards that must be met by any third parties providing such services.
Student Loan Debt Calculation
MBA said existing FHA Handbook policies regarding student loan debt calculation could disqualify a large number of potential borrowers. MBA recommended HUD consider an alternative to using 1 percent of the outstanding student loan balance as a proposed payment on deferred, unreported and income-based obligations. “Adopting an alternative would better align FHA with common industry practice while allowing for reasonable consideration of student loan debt during the underwriting process,” MBA said.
Rent Below Fair Market
The letter noted many lenders are unclear as to how they should calculate the “induced amount” of the subject property. MBA recommended HUD provide guidance as to how the induced amount is calculated and clarify if the below market rate calculation is retroactive to the beginning of the tenancy for multi-year occupancies or based on the rental amount of the most recent/current lease.
Minimum Decision Credit Scores
MBA said FHA Homeownership Centers often provide confusing information to lenders regarding credit score issues. MBA recommended HUD provide further clarity on FHA’s guidelines relating to the Handbook phrase “differing scores” to ensure lenders and CSRs understand that this requirement is referencing “scores from different providers.” A numerical example in the Handbook would be another beneficial tool to provide such clarity.
Deferred Action for Childhood Arrivals and Employment Authorization Documents
MBA noted given the future uncertainty of the DACA program, lenders are particularly hesitant to offer mortgages to individuals with deferred status and expired renewals, pointing out that currently, the Handbook contains three categorizations of non-U.S. citizen residency status: lawful permanent resident aliens, non-permanent resident aliens, and non-U.S. citizens without lawful residency. MBA recommended HUD provide clear guidance as to which category DACA participants should fall under or, alternatively, that HUD create a fourth category for these individuals. MBA also asked HUD provide further clarity related to the DACA program in the Handbook in order to ensure lenders understand the program requirements.
Contract for Deed
MBA noted current FHA guidelines allow the borrower to refinance the property while under a contract for deed, but not to sell the property as the owner to a new potential FHA borrower until title has been held for 90 days. MBA recommended HUD provide clear guidance specifically addressing transactions involving a contract for deed, including whether FHA will endorse mortgages for borrowers purchasing homes from sellers who acquired the subject property through a contract for deed.
Community Transfer Fees
MBA said FHA guidelines with respect to community transfer fees have recently changed due to the passage of the Housing Opportunity Through Modernization Act of 2016. While the changes exempt condominiums in such situations, HUD has not yet provided guidance for single-family properties. MBA recommends HUD consider adoption of Federal Housing Finance Agency guidance associated with Private Transfer Fees for single-family residences, which allows endorsement/purchase of loans for properties with mandatory transfer fees as long as such fees provide a “direct benefit” to the property. Such guidance would be consistent with FHA’s condominium guidance as mandated through the Act.
