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CHLA Comments on FHA's Proposed Supplemental Performance Metric


 2101 Wilson Boulevard, Suite 610

Arlington, VA 22201

(571) 527-2601

June 12, 2014
Ms. Carol Galante
Commissioner, Federal Housing Administration
Department of Housing and Urban Development
451 7th Street SW
Washington, DC  20410-0500
CHLA Comments –
FHA’s Proposed Supplemental Performance Metric
Dear Commissioner Galante:
The Community Home Lenders Association (CHLA) is pleased to submit the following comments in response to FHA’s Proposed Supplemental Performance Metric.
CHLA is pleased to see FHA proposing these supplemental changes to Credit Watch.  CHLA previously wrote on this topic, pointing out that the Compare Ratio methodology may create incentives for lenders to unduly constrict credit and to deny loans to otherwise eligible FHA borrowers.  CHLA supported a more objective methodology to establish Credit Watch default parameters which are directly related to FHA risk, as opposed to a comparison to other lenders.
FHA appears to be addressing this concern through the establishment of a supplemental performance metric which is objectively based, as opposed to using a compare ratio. 
FHA also proposes to establish different objective standards under this Supplemental Performance Metric for different FICO credit bands.  CHLA also supports this action, as CHLA believes it will address the concern that lenders are reluctant to make loans to otherwise eligible FHA borrowers in the lower FICO bands, out of fear that expected higher default rates may harm their Compare Ratio.  The proposal addresses this concern, by appropriately establishing target default rates based on risk and expected loan performance within each category.
CHLA notes that a percentage cap is set on the loans within the lower FICO band categories that are eligible to be rated based on objective performance within those categories.  This may limit the effectiveness in achieving the goal of removing lender disincentives to serve all eligible FHA borrowers, and FHA should consider eliminating these caps or making them more flexible.
We thank you for your consideration of these comments.