HUD Secretary Julian Castro announced in a speech on Monday the points of the agency's "Blueprint for Access" meant to ease the risk of lending while expanding credit.
"It's in our entire nation's interest to help more responsible Americans succeed in the housing market by expanding access to credit," Castro said. "Some believe that a few years ago, it was too easy to get a home loan. Now, it's too hard. In fact, according to the Urban Institute, the housing market is missing out on 1.2 million loans every year because credit is so tight. And even Ben Bernanke recently said that he's having trouble refinancing his mortgage. If the former Fed Chair is having trouble, imagine the frustration of average folks. The pendulum has swung too far in the other direction. There's been a vacuum in the market and it needs to be filled. Thankfully, we're already starting to see movement."
Castro termed the 1.2 million loans being missed as a "market opportunity" and encouraged lenders who have not done so to expand their credit, asking them if they wanted to "leave business on the table."
"All parties would benefit if you took action and expanded your reach. And I urge you to do so," Castro said. "But, I'm also aware that government must take action by shaping an environment where good lenders and good borrowers can work together without reservation. This means creating more certainty for you, which is a top priority at HUD. In the wake of the crisis, we've seen a lot of frustration from lenders when it comes to their FHA business."
Castro then introduced the Blueprint for Access, which includes three key points. First, he said, HUD is overhauling its "Single Family Housing Policy Handbook," and the first major section of the revised version (which covers loan originations) has already been published with changes made based on feedback received from lenders. Castro said HUD is accepting feedback for additional sections of the handbook and he expects it to be largely completed by next year.
"This is an important accomplishment and should give you confidence that you understand FHA's policies and its expectations for compliance," Castro said.
The second main point of the Blueprint for Access is the "Supplemental Performance Metric," which is intended to give a more complete portrayal of a lender's portfolio performance. The current metric measures only a lender's default performance against that of its peers in a local market, which "doesn't paint a complete picture," Castro said.
"The Supplemental Performance Metric addresses this by focusing on a lender's performance compared to those also doing business in the credit score range that FHA is targeting," Castro said. "We're finalizing this work and expect it to be available early next year. This will minimize the 'Credit Watch Termination' risk for lenders moving to support credit-worthy borrowers with lower credit scores when their peers do not."
The third key point of the Blueprint for Access is the "Loan Defect Taxonomy," which Castro said is currently in draft form.
"This is a new way of looking at loan defects and it's going to be a critical tool for our partners," Castro said. "FHA historically has used 99 different codes to describe defects in loans. The taxonomy will bring this down to nine distinct categories, and offer some new insight into the significance of the deficiency. This new approach will give lenders the information they need to clearly identify where their challenges are and allow them to make changes. It will allow FHA to monitor trends in deficiencies and determine if policies can be enhanced to help lenders avoid deficiencies."
Castro told the lenders he believes the Blueprint for Access will "bolster your confidence so that you can originate more loans to credit-worthy borrowers in FHA's credit box."