Reducing Annual Premiums
Since February, 2014, the CHLA has led the push for a reduction in the annual premiums that FHA charges on its loans – calling in a letter to OMB for an immediate reduction in annual fees from 1.35% to .75% – followed by a further reduction to .5% when the the FHA Fund hits its 2% Net Worth requirement. FHA loan volume is off almost 20% from a year earlier, particularly affecting home purchases by low income and minority homebuyers. FHA’s strong profitability on new loans, combined with strong drops in default rates, shows that FHA can now cut premiums while continuing its strong buildup of the FHA Fund and loan loss reserves.
Balanced Indemnification Policies
CHLA believes that one of the major problems in access to FHA credit is lender concern about FHA indemnification policies. Lenders should be held accountable for doing diligent underwriting according to FHA standards. However, in its comment letter in September, 2013 on FHA indemnification policies, CHLA laid out a number of important principles:
- FHA’s financials do not justify policies designed to increase levels of indemnification recoveries
- FHA should not use sampling to extrapolate to fines or indemnification across a lender’s portfolio
- FHA indemnification policies should be based on materiality and on actual loan losses
Eliminating Life of Loan Premiums
Almost immediately after FHA imposed life of loan premiums in the summer of 2013, CHLA weighed in in opposition to this change. CHLA believes this change unfairly overcharges FHA borrowers precisely at the time when FHA loans are the least risky, and has called for this policy to be overturned.
Credit Watch Changes
CHLA has long believed that the Credit Watch methodology, based on an average of lender performance, creates financial incentives for lenders to impose additional credit overlays and deny loans to otherwise qualified FHA borrowers, thus worsening access to credit – and has advocated for an objective benchmark based on default rates. Therefore, CHLA applauds recent FHA actions to develop a Supplemental Performance Metric, to create such an objective standard and to create different bands of performance based on FICO scores – steps which should improve access to FHA loans.
Qualified Mortgage (QM)
CHLA believes that QM is duplicative and unnecessary when it comes to FHA loans, since FHA loans are already subject to rigorous ability to pay and other underwriting standards. In its October, 2013 comment letter to FHA, CHLA advocated for the elimination of the APOR interest rate cap, pointing out that the permitted levels would crowd out loans to qualified borrowers, particularly for smaller balance loans. CHLA also argued for a more flexible points and fees cap for smaller balance loans, expressing similar concerns about the denial of loans to qualified borrowers.
[This material has been prepared by the Community Home Lenders Association (CHLA) for informational purposes only, and may not be used for public use without the express written consent of CHLA]