FHA loans

Dear FHA, Ignore the Doubters

American Banker

Scott Olsen, executive director of the Community Home Lenders Association, believes the Federal Housing Authority “should be dubious about calls for it to reduce its mortgage market footprint.”

After the 2008 housing crisis, the FHA financed 50% of the nation’s new home purchases, even when Fannie and Freddy couldn’t. But as the market bounces back and some argue that FHA should reduce its market share, Olsen says this would be a mistake. What if private investors remain risk averse and ignore low-income, low-rated buyers?

Many lenders are waiting to see if the FHA will come up with a fair standard for loan defects that could result in penalties or indemnification for loan losses. When the FHA does its loan certification rules, it will have an effect on whether lenders will be able to serve lower credit-score buyers.

Olsen adds: “It is also critical that FHA pursue more flexible policies on indemnification for poor underwriting, including more balanced treatment under the False Claims Act. FHA should also responsibly enhance flexibility in its underwriting guidelines to reflect particular economic challenges that certain borrowers face, such as high student debt and being self-employed.”

Last January, the FHA cut premiums 50 basis points. Olsen points out “the result was increased FHA loan volume, with more home purchases financed and more borrowers helped. At the same time FHA continued its progress toward financial strength.”

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