Deficient file documentation is the leading cause of initial “unacceptable” ratings in the FHA’s most recent post-endorsement technical review (PETR) of targeted single-family FHA loans. Published in the March 2014 issue of Lender Insight, review results showed that 50 percent of the 5,504 FHA loans selected for review in the fourth quarter of 2013 had missing or flawed documentation. Of that percentage, 65 percent of loans were rated “unacceptable.” Loans are selected for post-endorsement review based on a risk-targeting methodology and do not reflect the overall FHA portfolio. An “unacceptable” rating indicates that the loan endorsement file had a material defect at the time the loan was endorsed for FHA insurance. Such ratings are upgraded subsequently if the lender provides mitigating documentation. Unacceptable ratings are due to errors or flaws in ...

Ginnie Mae will provide a one-month grace period to April 30, 2014, for issuers to complete the submission of their master agreement to the Master Agreement Management System (MAMS) within the agency’s enterprise portal. The deadline for submission is March 31, 2014. The master agreements must first be accepted by the MAMS before an issuer may request or receive a “Transfer of Issuer Responsibility.” Failure to comply with this requirement could adversely affect the issuer’s ability to obtain commitment authority and to issue new pools or receive pool transfers. Although many issuers have resubmitted their master agreements, some found it difficult to complete the process within the required timeframe, according to Ginnie Mae. Providing a one-month grace period would help issuers to complete their resubmission. Issuers that still experience ...

The FHA has extended the filing deadline for lender recertification to June 9, 2014, to match the agency’s timeline for switching to the Lender Electronic Assessment Portal (LEAP). LEAP is a new system that will serve as a one-stop shop for all lender approval and recertifications. It replaces the current “Lender Approval” and “Cash Flow” web pages in FHA Connection as well as the current system lenders use to submit financial information as part of recertification. LEAP is scheduled to be fully operation this month, although consolidation of Title I and II lender identification numbers has already taken place on March 31. Last year, the FHA issued guidance extending the filing deadline for all lenders with a December 2013 fiscal year end. Although the guidance recommended that lenders be prepared to complete their recertification no later than May 31, it also stated that ...

Origination of FHA-insured reverse mortgages fell in the fourth quarter as borrowing costs increased and loan amounts shrank due to tighter agency rules for these loan products, according to Inside FHA Lending’s analysis of agency data. The FHA reported $15.3 billion Home Equity Conversion Morgages originations for 2013, which was up 20.6 percent from $12.7 billion in 2012. Production, however, fell 12.6 percent quarter over quarter as policy changes designed to stabilize the ailing Mutual Mortgage Insurance Fund and help ensure that HECM borrowers can sustain themselves for longer periods of time took effect on Sept. 30. The changes include limiting disbursements at loan closing, or during the initial 12 months after closing, to 60 percent of the initial principal limit. Borrowers who draw more than 60 percent will pay ... [1 chart]

Lenders are cautiously expanding their guidelines on FHA lending by reducing its minimum credit score to below 580 to qualify borrowers. Carrington Mortgage Servicers this week joined a cadre of some 80 FHA lenders that have lowered their minimum FICO scores and eased their overlays to better focus on borrowers, particularly those below the 640 FICO range. The Santa Ana, CA-based lender is doing it not only for its FHA business but also for its VA and USDA loan programs. Carrington lowered its minimum FICO score to 550 for FHA loans, showing more aggressiveness than Wells Fargo, which moved its own FHA FICO floor to 600 from 640 at the beginning of February for purchase mortgages originated through its retail channel. The FHA currently requires a minimum credit score of 580 for most borrowers for 3.5 percent downpayment loans. Borrowers below 580 undergo more stringent manual underwriting and ...

The Department of Housing and Urban Development has published a proposal to eliminate the requirement that an FHA borrower be required to pay interest even after the loan is prepaid. Specifically, the proposed change would prohibit FHA lenders from charging post-payment interest, allowing them instead to charge interest only through the date the mortgage is paid. The proposed rule change is necessary to avoid FHA loans being prohibited under new Consumer Financial Protection Bureau ability-to-repay rules and revised higher-cost loan regulations starting in January 2015. It effectively aligns FHA prepayment rules with the new CFPB rules. Comments on the proposal are due by May 12, 2014. The FHA currently allows lenders to charge interest for the full month if the borrower prepays on a date other than the installment due date. Regardless of whether the loan is FHA or non-FHA, there were complaints among borrowers that ...

Thirty-three FHA lenders were sanctioned and 32 others lost their FHA approval between October and December 2013 because of actions taken by the Department of Housing and Urban Development’s Mortgagee Review Board. The board also imposed $516,500 in civil money penalties and entered into one settlement agreement to bring an unidentified lender into compliance. During the three-month period, one lender entered into an indemnification agreement with the MRB over one FHA-insured single-family loan. FHA lenders were subject to MRB disciplinary actions for various reasons, including failing to establish and implement a servicing quality control plan and failing to perform loss mitigation as required by the agency. Actions were also taken against lenders for failing to conduct monthly reviews of delinquent loans to determine the type of loss mitigation needed, as well as for failing to repay HUD losses in connection with indemnification agreements. Noncompliance with HUD’s annual recertification requirements also resulted in ...

A mortgagee that no longer wishes to participate in FHA programs must submit a letter requesting voluntary withdrawal of its FHA approval, signed by a senior executive of the company, according to guidance published in the March 2014 issue of FHA’s Lender Insight. Lenders may not simply let their FHA approval expire by failing to complete FHA’s required annual recertification process, the guidance warned. “Failing to recertify will result in a referral to the Mortgagee Review Board for administrative action,” it said. The board’s withdrawal of a lender’s FHA approval could have an adverse impact on the lender should it reapply for FHA approval in the future. A lender requesting voluntary withdrawal of FHA approval is subject to a review before the agency signs off on the request. The request would be denied if the lender has an MRB administrative action pending against it or if it is behind on its mortgage insurance premium payments. A lender whose FHA approval has been withdrawn may ...

Old Republic Cancels Recapitalization Plan for its Mortgage Guaranty Subsidiaries. Old Republic International Corp. has withdrawn plans to secure capital market funding for its beleaguered consumer credit indemnity and mortgage guaranty subsidiaries for lack of investor interest. Both business segments are housed within the Republic Financial Indemnity Group and have been in a run-off mode since 2008 and 2011, respectively. ORI Chairman/CEO Al Zucaro said holding company funds would be used to shore up the regulatory capital of the mortgage guaranty subsidiaries. The completion of the recapitalization plan hinged on regulatory approvals in North Carolina, Florida and Vermont, as well as from the government-sponsored enterprises and the Federal Housing Finance Agency. ORI said that with all the complications, it could not be certain of getting the necessary approvals. A primary investor concern is that new capital would be used to pay for RMIC’s legacy problems, and investors want their money to ...

More lenders have expressed concern about a provision in the proposed FY 2015 federal budget seeking congressional authority to collect $30 million to help improve and strengthen FHA quality assurance reviews. Under the president’s budget proposal, FHA would collect an “administrative fee” from FHA lenders to implement the quality assurance (QA) changes needed to provide a clearer, more transparent picture of enforcement going forward. The improvements are meant to provide lenders not only information about early payment default or other kinds of default characteristics through loan sampling but also an accurate snapshot of their “manufacturing risk,” which is the risk that a loan is not underwritten properly. “The purpose is for lenders to have the information six to nine months after they have originated the loan as opposed to ...