HUD ups the ante for FHA lenders
September 19, 2009 by admin
The department of HUD (Housing and Urban Development) a government agency that oversees the Federal Housing Administration loan program (FHA mortgages) is in the process of tightening guidelines for companies that offer its loan programs. The government agency is attempting to ensure that its lending partners are the best of the best, and help to mitigate potential fraud and misrepresentation. This past week, HUD announced they would be increasing the required net worth of its lending partners to one million dollars, up from two hundred and fifty thousand. In addition, they would be eliminating licensing for mortgage brokers and shifting more emphasis to direct lending partners.
FHA mortgages have surged in popularity over the past twenty four months. FHA loans, which tend to be more lenient to borrowers with less than perfect credit histories also offer the lowest down payment option for home buying in today’s mortgage market. FHA loans allow a borrower to purchase a new home with as little as three and a half percent down payments. The government also initiated a program this year, allowing the first time home buying tax credit to be applied towards and FHA buyers closing fees. This allows first time homebuyers to purchase homes with minimal out of pocket expense, and is being credited as one of the key catalyst in helping to drive the rebound in the housing market this year.
Borrowers who wish to apply for FHA mortgages need to apply with banks or lenders that are approved to offer FHA backed mortgage loans. FHA does not directly offer home loans to the general public. Their role, as a government sponsored agency is to provide funding and purchase mortgage backed loan securities that are underwritten to FHA guidelines. This process is similar to how Fannie Mae or Freddie Mac, conventional home loan agency lenders operate. Establishing the underwriting guidelines and approving select lenders allows FHA to reduce their risk in their loan portfolios. The agency, which has not been immune to the slump in the housing sector, has yet to receive bailout money from the government, despite growing defaults within its loan portfolio. The Department of HUD, also regulates reverse mortgage loans through the FHA loan administration. Borrowers applying for a reverse mortgage need to apply through lenders that have endorsements from FHA.
The role of FHA as a key component in the mortgage finance industry has never been more apparent. The agency, has stepped in and filled a large void in the secondary market for home buyers and home owners who would not qualify for conventional loan funding. The companies decision to increase its regulation on its lending partners, comes at a time when FHA mortgages have seen their market share increase by almost two hundred percent in the past two years. The decision to implement additional guidelines could help FHA to ensure a cleaner and more profitable loan portfolio in the future. Consumers in the market for an FHA mortgage need to investigate if they are working with a direct FHA lender, or simply a middle company, representing an FHA lender.