The Department of Housing and Urban Development is seeking comment on a policy change that would reduce the FHA’s credit-score threshold from 620 to 580 to allow more manually underwritten borrowers to use compensating factors that would help them qualify for an FHA-insured mortgage loan. The change would strengthen manual underwriting and reduce FHA’s underwriting losses, resulting in more revenue per loan for FHA, HUD said. “The FHA can control costs through risk management practices,” the agency explained in a notice of rulemaking. “The lower costs are a gain to FHA.”

The Department of Housing and Urban Development this month expects to issue a final rule that would eliminate the process of requesting alternative FHA maximum loan limits due to improved access to, and availability of, home sales data. With the availability of comprehensive national databases of home sales transactions and continuing data-collection efforts, the regulations governing requests for alternative maximum mortgage limits have become outdated and unnecessary, the agency said.

The Department of Housing and Urban Development warned of tougher enforcement against servicers who do not make full use of HUD’s loss mitigation tools, as it announced the implementation of a newly revised tiered servicer ranking system. The new system, Tiered Ranking System II, features a new scoring mechanism that would help HUD determine which lenders get higher reimbursement rates on claim expenses based on their servicing performance.

Approximately 48 percent of FHA loans that underwent post-endorsement review by the FHA in the third quarter of 2013 received an “unacceptable” rating – a commonly high percentage of deficient FHA-insured loans that lenders could lower through mitigation. The FHA reviewed 6,692 FHA-insured loans between July 1 and Sept. 30, 70 percent of which were home-purchase loans, 25 percent streamline refinancings, and 5 percent rate and term refis. Of the total loans analyzed, 36 percent had certain deficiencies, 19 percent showed early payment default (EPD), and only 16 percent met FHA underwriting standards, according to the agency’s latest report on loan-file review findings.

FHA and VA loans backing Ginnie Mae pools in 2013 showed an average mid-range FICO score of 693, lower debt-to-income ratio and an average loan size of $187,268, confirming strict underwriting in both government programs, according to an Inside FHA Lending analysis of Ginnie Mae loan-level disclosures. Issuers securitized $370.4 billion of mortgages with first payment date in 2013 through November. Loan characteristics exclude loans with no information reported.

The Department of Housing and Urban Development has delayed the implementation of a new requirement to assess the financial condition of borrowers seeking a Home Equity Conversion Mortgage loan, which was to take effect on Jan. 13. HUD’s decision to delay responds to an industry concern that the initial effective date does not give lenders sufficient time to customize appropriate software, hire and train new underwriters and complete other critical implementation tasks. It would take at least three months to do all these things, lenders said.

Severe decreases in the FHA loan limits in numerous counties across the country have spurred industry demand for the Department of Housing and Urban Development to disclose the methodology and process it used to determine the new loan limits. Although HUD’s announcement of lower FHA loan limits for 2014 had been long expected, mortgage industry participants were caught off guard by the substantial reductions in FHA loan limits caused by the statutory change in how the limits are calculated and by revised median house prices. For 2014, HUD announced that the national ceiling limit for single-family mortgages in high-cost areas would decline to ... [1 chart]

Policy changes implemented since 2009 appear to be having a positive impact on the FHA Mutual Mortgage Insurance Fund, which is still $1.3 billion in the red, but its net worth grew $15 billion over last year’s estimate, according to the latest independent actuarial audit of the FHA fund. The MMI Fund’s economic value improved from negative $16.3 billion last year to negative $1.3 billion. Its capital reserve ratio, which has been a cause of disagreement among lawmakers and industry players, also rose from negative ...

With one week left on Congress’ calendar year, Senate approval of S. 1376, the FHA Solvency Act of 2013, before the end of 2013 is becoming more unlikely, according to lobbyists. The bill is stalled and is unlikely to be brought to the floor any time soon. If the housing sector continues to improve, the government-sponsored enterprises continue to generate profit and the FHA’s newer books of business continue to perform well, passing GSE or FHA reform legislation next year would be an uphill battle, lobbyists said. The Congressional Budget Office estimates that implementing S. 1376 would result in ...

The Department of Housing and Urban Development has released a final rule defining a “qualified mortgage” that is insured by the FHA. The final rule will be effective on Jan. 10, 2014. The HUD rule builds off the QM/Ability-to-Repay rule, which the Consumer Financial Protection Bureau finalized earlier this year. The Dodd-Frank Act requires HUD to propose a QM definition that is aligned with the ability-to-repay criteria set out in the Truth in Lending Act and with the agency’s mission to ...