0
0
It’s no secret that the major banks have moved away from FHA lending because of their perception of the risks related to the required loan certifications and lack of clarity on potential enforcement. As a result, non-bank mortgage lenders have picked up the slack. This presents some additional lending opportunities for non-bank lenders.
With this increased FHA business, non-bank lenders take on the increased risk of lending to low down payment, low to moderate income borrowers, with limited housing experience. Also, the same risk that the banks face related to the required FHA certs.
Seems the non-banks are handling the transition quite well. FHA lending is doing just fine and now we learn that FHA loan defect rates are actually improving. A recent report issued by First American Financial Corp indicates the application defect rate for FHA, VA and USDA loans is almost 18% lower than what it was in 2015.
It has declined more than that of the conventional loans originated during the same period. In fact, the FHA/VA/USDA defect rate is currently 14.5% better than their conventional counterparts.
It appears the non-banks are taking the FHA loan originations seriously to ensure accurate originations with minimal defects. Maybe the banks and other conventional lenders can take a page from their play book to help reduce the conventional loan defects as well.
The squeakiest wheel always gets the most attention and oil. FHA and DOJ went after lenders hard on FHA defects, and are continuing to so. FHA also reiterated and reinforced the certifications required in connection with their loans. This appears to have gotten everyone’s attention. Better FHA loans are better for lenders, FHA and consumers.
While the FHA loan defects are declining, more work needs to be done on the conventional loans by both banks and non-bank lenders. These defects expose the lenders to increased risk of defaults, indemnifications, and potential repurchases. The type of loan shouldn’t matter. A quality loan is a better loan, regardless of type.
Training, technology, and tracking should apply to all loans lenders originate. If you’re paying attention to the government loans, why not have the conventional loan reviews tag along? Pre and post-closing audits are required on both FHA and conventional Agency loans. You might as well get the most out of the results.
If FHA loan defects can be reduced, then all loan defects can be reduced. It just takes a little attention to detail in the manufacturing process. Quality and compliance are the keys to a lender’s continued success.
