CHLA Recommendations for FHA Policies


[May 2019]


ELIMININATING LIFE OF LOAN PREMIUMS


FHA should end its Life of Loan
premium policy that was put in place in 2013. 
This policy


(1) Overcharges borrowers, who have
paid 10% in premiums by the time they hit the 78% LTV mark,


(2) Hurts FHA finances by reducing its
refinance retention rate from over 50% to below 15% today, and


(3) Contributes to Ginnie Mae
prepayment speeds.


OTHER POLICIES AND ACTIONS


  • Fund
    Modernization of FHA Technology Upgrades. 
    Congress should
    reauthorize lapsed authority under Section 2126 of HERA for FHA to use $25
    million from its $7 billion in annual net profits to fund needed IT and other
    technology upgrades.  This approach
    should be pursued instead of imposing a $25/loan fee, which will be passed
    along to borrowers
    .


  • Modify Premium Structure. FHA should reduce its annual premium to .55% and
    increase the upfront premium to offset the revenue loss.  This upfront increase should then be
    eliminated when the FHA forward program Net Worth Ratio exceeds 4% and the
    overall ratio exceeds 3%.


  • Reduce
    Disproportionate Penalties for Missing Servicing Action Dates
    .   FHA financial penalties
    for failure to meet specific dates for taking action on non-performing loans
    are disproportionately high relative to the impact of failure to meet those
    dates and should be adjusted appropriately.


  • Modernize
    Underwriting Guidelines
    .   FHA should modernize its
    underwriting guidelines to more accurately reflect sources of economy which
    merit consideration, such as work performed in the gig economy and small
    business income.


  • Increase Maximum
    Loan Assumption Fee.
     FHA
    should raise the maximum FHA lender loan assumption fee from $900 to $3,000 per
    loan, to keep pace with inflation.


  • Finalize Pending
    FHA Condo Rules.
      FHA
    should finalize pending proposals to increase flexibility for FHA condo loans,
    including eliminating owner occupied percentages in condo developments and
    streamlining certification process.


  • Back-end Reforms
    for FHA Reverse Mortgage HECM Program.
       FHA should extend the Cash
    for Keys authority to make it available for all HECM loans and should allow
    existing servicers to retain servicing after the 98% LTV HUD assignment date
    instead of transferring servicing responsibilities for all HECM loans to a HUD contract
    sub-servicer.