FHA Indemnification Proposal Could Curtail Lender Participation, MBA Says

Posted by Orb Staff on December 08, 2010 No Comments
Categories : Mortgage Servicing

The Federal Housing Administration's (FHA) proposal to create more stringent mortgagee indemnification requirements is unfair to lenders that participate in the agency's lender insurance process, the Mortgage Bankers Association (MBA) says. MBA President and CEO John Courson outlined a series of concerns about the proposal in a comment letter to the FHA this week.

The FHA, which announced its proposal in October, wants lenders to indemnify the U.S. Department of Housing and Urban Development if they fail to verify and analyze the creditworthiness, income or employment of the borrower. The insurer is also looking to bolster its requirements for lenders to maintain healthy claim and default rates.

‘We need to clarify which circumstances we'll require indemnification and the level of loan performance we expect lenders to maintain,’ FHA Commissioner David H. Stevens said in October.

In the MBA's letter, Courson says the proposed rule would penalize responsible lenders by requiring them to indemnify for loans regardless of cause or materiality and without a well-defined and transparent appeals process.

The letter notes that such increased risk could discourage lender participation in the FHA program and could cause lenders to further tighten their own guidelines for underwriting FHA loans.

‘Making the rules overly strict and incontestable only serves to heighten all lenders' reservations in originating FHA loans through the [lender insurance] process,’ Courson writes.

To view Courson's letter, click here.

SOURCE: MBA

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