On March 15, the Federal Housing Administration (FHA) clarified its policies on annual and loan-level certifications to try and convince lenders to continue making FHA loans without undue fear of enforcement efforts around loan defects not material to the loan-approval decision.
Several high-profile lenders in recent years have encountered an enforcement posture when doing FHA loans that has left them questioning if the legal exposure is worth the risk of originating FHA loans. The Department of Housing and Urban Development (HUD) responded with some clarifications around its FHA certification rules to address those concerns and to convince lenders to keep the credit box from narrowing unnecessarily for borrowers who need the FHA program to qualify, especially for home-purchase loans.
Ed Golding, principal deputy assistant secretary for the Office of Housing at HUD, outlined the changes designed to provide more clarity to lenders about what their liability will be going forward. He announced two changes to the FHA's loan-level certification policy. In addition, he said FHA was reissuing the annual lender-level certification rule for a 30day public comment period.
In terms of the final loan-level certification rule, "FHA is clearly identifying [that] lenders will be held accountable for only those mistakes that would have altered the decision to approve the loan," Golding said in written commentary about the changes. He added, "This important move makes it very clear that minor mistakes that do not affect the decision to approve a loan are not the focus of our compliance efforts."
Golding noted, "Clarifying that we are interested only in errors that would have altered a decision to approve the loan should put to rest any confusion regarding FHA compliance policy."
Also, the rules were revised to clarify that in a FHA loan-level certification, "the lender is certifying to what they know to be true to the best of their knowledge." Golding wrote, "The certification is not intended to hold lenders responsible for mistakes or fraud committed by a third party that the lender did not or could not have had reason to know of."
He added, "Our goal is to make sure that lenders make every effort to obtain accurate information and to validate that information but also recognize that due to the complexity of putting a home loan together, minor errors in information may occur from time to time."
Golding wrote that the loan-level...