FHA Loans Looking Droopy, But Why?
- posted 9.26.2014
- Rosemarie Pirio
- Home Loans
FHA Loan originations have fallen 19% from October 2013 to June 2014. So what's the skinny?
According to HUD's Secretary Julian Castro, it's NOT due to the disputes with big bank lenders over who covers what when an FHA mortgage defaults, but rather is a reflection of the drop in the mortgage market as a whole.
Many of the larger banks like JPMorgan Chase & Co. are shying away from the FHA program because they just can't come to an agreement with the U.S. government on who pays what when these potentially "riskier" mortgages go sour. They're pretty concerned that they may be penalized for what they consider inconsequential underwriting errors when loans default. And this isn't coming from nowhere. JPMorgan Chase & Co., Bank of America Corp. and others had to pay to the Department of Justice a whopping sum of $3 billion in fines for originating faulty FHA loans during the housing bubble.
HUD is rewriting its handbook, with the first section to come out any day now before the end of September. This first portion will ultimately solidify the underwriting standards and provide guidelines for lenders.
The second revision will more clearly define when lenders can be forced to cover the costs of the defaults, and they want to know what you think! So go ahead public, you have until October 15th to speak up.
Castro sent a message to lenders, similar to the tune of one of WAR's most popular songs: "With all our efforts, I want to send a simple message to lenders: let's work together … Why can't we be friends, why can't we be friends …"