The Federal Housing Administration (FHA) released its proposed draft for Loan Quality Assessment Methodology for feedback Tuesday as it considers key changes to the way it identifies and enforces loan defects.
The FHA’s Single Family Housing Loan Quality Assessment Methodology is one part of FHA’s Blueprint for Access strategy announced earlier this year to expand access to mortgage credit for underserved borrowers.
The initiative’s overall objectives are to provide a loan quality assurance framework approach that “communicates a clear policy message, encourages lending to FHA targeted populations, and provides feedback on the effectiveness of [the agency’s] underwriting policies,” FHA says.
Today, the majority of current defect codes focus on causes, often leading to multiple codes all describing a small piece of a single, fundamental issue, the agency says. An alternative is that there are a limited number of defects, capturing the fundamental issues that impact a loan’s insurability, credit quality and compliance. Although there are significantly fewer defects, each defect employs between 15 to 30 reason codes to capture rich detail about why a defect occurred.
The proposed Methodology is based on three core concepts: identifying a loan defect, capturing the sources and causes of the defect and assessing the severity level of the defect.
The Methodology is comprised of nine proposed defects, their specific sources and causes, and four defect severity levels.
Feedback is encouraged through Oct. 15.
Access the Methodology here.
Written by Cassandra Dowell
