The Federal Housing Administration is clarifying its rules to ease compliance concerns and encourage more banks and lenders to participate in its mortgage lending programs.
On Thursday, the FHA released proposed clarifications to its annual and loan-level certification requirements, as well as updated language describing what constitutes a defective loan and how such problems can be remedied.
To provide that clarity, FHA Commissioner Brian Montgomery said the agency is proposing to replace the “jumbled legalese” in its certification and compliance documents with “plain English.”
Among the proposed changes are revisions to HECM loan-level documents that are intended to reduce confusion.
Gisele Roget, deputy assistant secretary of single-family housing at FHA, said the current HECM form includes borrower and lender certification on the same page, and that industry feedback highlighted this as problematic.
“So what we did in this proposed revision is we put the borrower certification in one section of the form and the underwriter and mortgagee section in a separate section of the form,” Roget explained on a call with reporters.
She also noted that the proposed revisions remove confusing jargon and contain direct bullet points that reference specific and relevant sections of FHA’s handbook.
Montgomery said the agency hopes the clarifications will encourage more banks to participate in the FHA’s programs.
“We are looking to bring clarity to our compliance rules that continue to discourage many lenders – including banks – from doing business with FHA,” Montgomery said. “We’re hoping to be more transparent in how we do business with lenders by letting them know what the potential remedies are for mistakes or errors they may make in the origination and servicing of FHA loans.”
“Banks have said time and time again that the reason for their limited participation in FHA is the legal liability associated with enforcement actions stemming from the False Claims Act,” Montgomery continued. “They have expressed concern that even minor errors could expose then to severe penalties.”
The agency said this includes revisions to its “defect taxonomy,” which will clarify categories of defects and explains how the severity of each is weighed to shed light on the fact that enforcement actions will be appropriate and dependent on the gravity of the infraction.
“A key focus of this administration and of my tenure at HUD has been to improve the clarity, certainty, and transparency of our regulations and requirements,” Housing and Urban Development Secretary Ben Carson said in a statement. “While HUD will preserve its strict enforcement authority where our requirements are violated, we will continue to reduce unnecessary burdens on stakeholders across our programs.”
The FHA’s proposed clarifications are available for public comment for a 30-day period before they are finalized.