FHA Finalizes Rule, Toughens Lender Insurance Criteria

The ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory (FHA) finalized a new rule Friday that makes it tougher to qualify for loans insured by the agency.

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To qualify for mortgage insurance, lenders must offer up evidence that their seriously delinquent and claim rates remain at or below 150 percent of aggregate rates in home states.

The rule authorizes more extensive examination for lenders in order to ensure that they are able to meet the FHA's new qualifications. It requires that certain lenders indemnify HUD in claims over loans.

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""Taken together, the changes announced today will protect FHA's insurance fund from unnecessary and inappropriate risks while offering clear guidance to lenders regarding HUD's underwriting expectations,"" ""Carol Galante"":http://portal.hud.gov/hudportal/HUD?src=/about/principal_staff/assistant_secretary_galante, acting commissioner for the FHA, said in a statement.

""FHA must continue to strike a balance between managing risks to its insurance funds and ensuring that FHA products are offered as widely as possible to qualified borrowers,"" she added. ""We hope that the added clarity and certainty provided through these rules will enable lenders to extend financing opportunities to larger numbers of American families as the nation's housing market and economy continue to recover.""

The move arrives amid criticism that diminishing capital for the Mutual Mortgage Insurance Fund may necessitate a bailout for the FHA.

Earlier last fall a white paper by Joseph Gyourko, a professor of real estate finance at the University of Pennsylvania, suggested that the FHA would need a draw from Treasury in the amount of anywhere from $50 billion to $100 billion in order to stave off fiscal insolvency.