FHA: Take This Loan And Shove It (Harry Reid Objects To Closing Down Fannie and Freddie)

Confounded Interest ^ | 08/13/2013 | Anthony B. Sanders

[whitedog57]

According to Kate Berry of American Banker, the cost of doing business with the Federal Housing Administration could skyrocket if the agency adopts a new method for calculating lenders’ liability for poorly underwritten loans that default.

The method under consideration would have the FHA examine a random sampling of each lender’s loans, calculate the percentage of loans in the sample with underwriting defects, and then extrapolate that rate to the lender’s FHA portfolio. Lenders would then have to compensate FHA for the “estimated total risk” to the agency’s insurance fund.

“If this goes through, it means it will be a lot more expensive to be an FHA lender,” says Phillip Schulman, a partner at the law firm of K&L Gates. “If a lender runs the risk that every time he makes a mistake it will be multiplied against his entire portfolio, he has to be very cautious.”

Schulman, a former assistant general counsel in the inspector general’s office at HUD, calls the proposal “draconian” since it appears to adopt a theory of liability that the Justice Department has applied against the largest banks in FHA-related cases. HUD, which oversees the FHA, would now use the same enforcement techniques against every FHA lender, Schulman says.

In other words, the FHA is considering a “Take This Loan And Shove It” approach. Too bad Johnny Paycheck isn’t alive to record a sequel to his 1980 hit.

The FHA has a history of high LTV (low down payment)

fhamortgage

and low credit score mortgages.

fhalowficobook

So, what effect will the draconian change in FHA rules have? I wouldn’t be surprised if FHA lenders decide to search for greener pastures.

Particularly since Senate Majority Leader Harry Reid publicly disagreed with President Obama over shutting down mortgage giants Fannie Mae and Freddie Mac.

So if FHA shrinks (because of high insurance fees and fears of government harassment), then Fannie Mae and Freddie Mac are back in play.

[whitedog57]

Shell game. FHA gets tough, pressure is on to KEEP Fannie and Freddie.

[Mr. K]

so wait... the government will do ‘redlining’???

I thought they made that illegal~! (you know, you just can’t check out a credit rating and ability to pay- that’s just WRONG!)

If the government does this, then they have to GIVE BACK all the money that Andrew Cuomo sued the banks for (and won) for doing that exact same thing

Clinton and Cuomo kicked off the whole housing fiasco by suing banks that would not loan to derilicts, and guaranteeing the loans if they did- making it a win-win for banks if they did and lose-lose if they didn’t.