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Federal Housing Administration’s Proposal Falls Short, Hits Borrowers Coming and Going

Tuesday, September 1, 2015
Michael Calhoun

The Federal Housing Administration's mutual mortgage insurance fund plays a critical role in providing access to credit so that millions of Americans—many of whom are first-time buyers, come from low- and moderate-income backgrounds, or purchase homes in communities of color—can be successful homeowners. The FHA today proposed revised language on the lender certification of loan and borrower eligibility and lender disbarment.

Mike Calhoun, CRL president, commented:

The housing market needs to provide consumers with affordable, well-underwritten home loans, ensure the fiscal strength of the insurance fund, and create clarity that assures all lenders about the rules in order to stimulate FHA lending.

Today's announcement by FHA falls short of that by not improving either loan certification or quality control requirements to make FHA work better for both borrowers and lenders.

In short, the FHA changes fail to serve borrowers coming and going. On the one hand, they don't provide enough protection against dangerous loans. On the other, the proposal may not do enough to encourage access to good credit.

Lenders should all be more accountable for properly underwriting loans. At the same time, FHA needs to have a better system that is targeted, efficient, clear and consistent throughout the process. It should hold all lenders to a higher standard on the front end to ensure loans are responsible. And it should also correct—not penalize—inadvertent errors made by good faith lenders who can become so afraid of a potential suit that they are not making the FHA loans that would bring more creditworthy borrowers into the housing market.

Credit remains tight overall in the housing market. In 2013 alone, nearly half of all Latino and African-American home purchases were financed by FHA. FHA loans have been a big part of the nation's economic recovery by boosting the housing market at a time when some estimate lending is falling short by over a million purchase loans a year.

The ultimate goal here is to make more home loans available to well-qualified borrowers by clarifying and improving lending standards. We continue to challenge the FHA to help accomplish this.

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For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at Andrew.High@responsiblelending.org or 919-313-8533.