MBA, Trade Groups Urge HUD Implementation of New Loan-Level Certification Rules
The Mortgage Bankers Association and other industry trade groups last week commended HUD for making recommended changes to FHA-insured mortgages and urged the department to move forward to implementation.
HUD in October published an Addendum to the Uniform Residential Loan Application, noting changes to determining eligibility of a borrower and proposed mortgage transaction for FHA’s insurance endorsement. Together they describe the parties involved, the property and the conditions and terms on which the mortgage insurance will be based. The Addendum’s loan-level Mortgagee certification statements reflect public comments submitted to FHA (including by MBA and the trade groups) in response to the previous draft posted on the FHA Office of Single-Family Housing “Drafting Table”2 in May 2019, including comments that we submitted.
MBA; the Housing Policy Council; the American Bankers Association; and the Bank Policy Institute said they were “very pleased” with not only the changes being considered for the loan-level certifications, but also the changes already instituted for the annual certifications and the defect taxonomy (as well as the new memorandum of understanding between HUD and DOJ). “Together, these elements should significantly reduce the risks associated with excessive reliance on the False Claims Act with respect to the FHA program,” they said.
“We share HUD’s view that it is critical to create an environment in which lenders can operate with clarity and certainty regarding FHA’s program requirements, which necessitates an unambiguous compliance standard and explicit information on the potential penalties for noncompliance,” the letter said. “We believe that the Addendum’s loan-level Mortgagee certification statements will assist in accomplishing these goals, and we, therefore, support the proposed information collection as necessary for the proper performance of the functions of the Department.”
The trade groups said they appreciate HUD’s efforts to amend the Addendum’s certification statements to align the statements with existing regulatory requirements, as well as FHA’s insurability standards. “These changes will help to reduce uncertainty in the industry regarding the risks associated with originating FHA loans,” it said. “Specifically, the revised loan-level Mortgagee certification statements reinforce a Mortgagee’s obligation to adhere materially to FHA program rules in the origination of FHA-insured loans. They also support HUD’s objective to hold lenders accountable and protect the financial health of the FHA Mutual Mortgage Insurance Fund by evaluating the severity of any loan-level defects, and therefore loan-level certification inaccuracies, in accordance with the Defect Taxonomy in place at the time of loan endorsement. We thank the Department for removing the overly broad attestations of compliance with regulatory and HUD Handbook 4000.1 provisions that had no impact on the insurability of the underlying FHA loan and increased the risk of potential liability under the False Claims Act. Moreover, we support the Department’s revisions to streamline the Addendum by removing from the form VA requirements, as well as a number of ancillary program guidelines.”
The letter noted implementation of a coordinated and complementary annual certification, loan-level certification and Defect Taxonomy is necessary to create and foster a regulatory environment that will boost lender confidence in the FHA program. “The revised loan-level Mortgagee certification statements provide a positive step for FHA to achieve this objective, which could help to increase and diversify lender participation in the FHA program, strengthen the MMI Fund, and ultimately expand access to credit to the benefit of FHA, homeowners, and communities,” the letter said.
MBA and the trade groups recommended adoption of the revised loan-level Mortgagee certification statements occur “as quickly as reasonably possible.”
