Loan Modification

FHA Tightens Lender Requirements: How FHA Borrowers Benefit

By Karen Lawson

HUD mortgagee letter 2010-20 outlines new minimum net worth requirements for FHA lenders, and also phases out the loan correspondent program, which allows mortgage brokers direct approval authority. HUD approved lenders will now have to sponsor mortgage brokers and be fully accountable for any loans underwritten by sponsored loan correspondents.

FHA is changing its requirements in response to losses incurred after the demise of sub-prime lending caused FHA to take on a much larger share of new home loans. Rapidly increasing home loan volumes caused some FHA lenders to overlook underwriting criteria, which has caused FHA cash reserves to fall below required minimum levels. New FHA regulations are designed to reduce faulty lending practices and hold FHA lenders accountable for errors in underwriting and loan approvals.

FHA Guidelines: How they Help Buyers and Homeowners

Mortgage loans can last for decades and are typically the largest investment made by consumers. Problems with your mortgage loan can  impact your finances and may also lead to legal problems if FHA suspects that your mortgage was obtained using fraudulent information. Rogue mortgage lenders may commit mortgage fraud without consumers’ knowledge, but if you sign a fraudulent mortgage loan application or other documents, you may be held criminally liable for mortgage fraud.

Mortgage Lender Requirements Reduce Mortgage Fraud

FHA is phasing out its loan correspondent program, and will soon hold FHA lenders accountable for all FHA loans originated whether through sponsored loan correspondents or their own underwriting. Critics of the plan for phasing out loan correspondents suggest that this could impact buyers and homeowners by providing fewer sources of FHA loans. Although this is possible, it will also weed out third party loan originators who don’t follow FHA guidelines. FHA lenders working under the new criteria will have to demonstrate increased net worth and will also be held directly liable for losses stemming from non compliance with FHA requirements.

FHA Loans: Avoiding Problems

Dealing directly with an FHA lender in your area can help prevent problems with your loan application and documentation. Be proactive in protecting your interests:

• Ask questions, and more questions: If you’re concerned or confused about any aspect of your mortgage loan or the application process, don’t be shy. Ask questions and make sure that your concerns are addressed before signing anything.
• “Don’t worry about that” means you should worry: Don’t do business with a lender that suggests signing documents in blank or doesn’t take your questions seriously. Your signature on a mortgage loan application or other loan documents indicates that you have read, understand, and agree to the information contained in the documents you’re signing.
• Review documents before signing: Verify the information contained on documents you’re asked to sign. Make sure the loan amount, terms and your personal information is accurate. Pay close attention to your income and deposit information; if it’s inaccurate, ask to have it corrected.

FHA guidelines are designed to protect you, FHA lenders, and the agency from unnecessary risk and losses associated with foreclosure.

Full post as published by FHA Mortgage Guide on June 30, 2010 (boomark / email).