Vicki Bott Speaks to MBA Committee

The MBA Residential Loan Production committee meeting was held yesterday at the MBA Convention in Atlanta. Vicki Bott, Deputy Assistant Secretary of Single Family Housing Programs spoke at the meeting and provided an important update. FHA’s main focus in 2011 will be oversight of its business partners the DE lenders. Bott said they will be “looking harder and smarter” at the quality of loans. Her message is loud and clear that to protect the fund FHA must have strong enforcement of its policies. As many of you know effective 1/1/11 FHA has eliminated the loan correspondent status and non FHA approved lenders will be allowed to originate loans. This is a first for FHA. They have put the responsibility squarely on the sponsors to monitor the quality of wholesale loans. By eliminating the approval requirement a non FHA approved company can originate loans in any state where they are licensed. However an FHA approved mortgagee is subject to FHA’s geographic restrictions that require a physical branch in a region before being able to originate in that 5 state area. Bott said that we can expect a mortgagee letter that will make some important modification to level the playing field an eliminate the geographic restrictions for retail lenders. This is an important positive change in the cost associated with FHA approvals. As the industry and FHA gear up for the lender approval changes, FHA will also provide clarification for handling loans that are in transition on January 1, 2011. Traditionally FHA has used case number order date to define whether a loan must follow a policy change. Bott noted that on the day before the MIP changes occurred 90,000 case numbers were ordered. Needless to say FHA sees the pattern of piling on case numbers to fit into a more advantageous policy. Therefore, we can expect that FHA’s guidance on case numbers ordered by loan correspondents at the end of December will put some type of restrictions and/or warnings in place. The most promising news from Bott is FHA’s desire to provide more “prescriptive standards” for manual underwriting. She explained that some lenders are too conservative and prohibit manual underwriting while others are too aggressive and FHA wants there to be balance. FHA’s plan is to provide very specific policies where compensating factors align with the housing payment. As we have watched in their proposed rule, compensating factors and ratios will become more rules based in manual underwriting. This is promising because the message was clear that FHA wants lenders to be comfortable with manual underwriting. She indicated that lenders will see refinements in Total Scorecard with this in mind. Bott gave no hints about where FHA is leaning with regard to the change in the maximum allowable seller contribution. They received over 1000 comments on this part of the proposed rule and are still reviewing the concerns. Without question the 6% will be reduced. FHA cannot continue to be the only entity permitting this layer of risk. It’s simply a matter of whether FHA’s default data will allow them to consider 3.5 or 4%. “We are not significantly nimble” was the quote of the day from Bott. She added that they are filling positions and working diligently to bring consistency between the HOCs and that change doesn’t go as fast we all would like. The MBA Loan Production Committee and FHA working group appreciated the opportunity to hear directly from HUD and look forward to working closely with Vicki Bott as important policy changes continue in 2011.