HUD/FHA is proposing to amend language on their certification forms where lenders certify that a loan is eligible for FHA financing (insurance). We believe the proposed language is a step in the right direction, but we offer additional suggestions.
The components of our recommended framework to FHA include providing a certification that includes provisions for all of the following:
- The requirement that a lender exercise due diligence and good faith in underwriting a FHA-insured mortgage loan
- A strong quality control obligation on the part of all FHA insurance lenders
- An automatic obligation to remediate or indemnify FHA for any defect that affects the insurability of a loan origination.
If each of these provisions is met, a lender should be considered to be in compliance with FHA's certification and program requirements and, as a result, not be subject to further enforcement actions.
Together, these three recommendations represent an enhanced certification process that will better protect consumers, better ensure the fiscal strength of FHA and the MMI Fund, and better provide lenders with the necessary assurances to stimulate access to mortgage credit for consumers of FHA-insured products.