Federal Housing Administration (FHA) Commissioner David H. Stevens announced plans to implement credit policy changes that will enhance the agency’s risk management functions. FHA will hire a Chief Risk Officer for the first time in the FHA’s history. Commissioner Stevens said “to be clear, the fund’s reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new Congressional action. That said, given the size and scope of the FHA and its importance to today’s market, these risk management and credit policy changes are important steps in strengthening the FHA fund, by ensuring that lenders have proper and sufficient protections.”
FHA is implementing new policies in a mortgagee letter that will be effective January 1, 2010. FHA will reaffirm existing policy on appraiser independence and geographic competence. Mortgage brokers and commission based lender staff will be prohibited from ordering appraisals. FHA’s appraisal validity period will be reduced from six months to four. HUD also acknowledges that FHA is considering implementing components of HVCC for FHA-insured mortgages.
The mortgagee letter will require audited financial statements by supervised mortgagees, modify the streamline finance process, and enhance appraiser independence. The streamline refinance process will include new requirements for seasoning, payment history, income verification, and demonstration of net tangible benefit to the borrower; provide for collection of credit score information when available; and to cap maximum loan-to-value (LTV) ratio at 125 percent.