The Department of Housing and Urban Development (HUD) gave more details Thursday on its plan to weed out underperforming Federal Housing Administration (FHA) lenders.
Every three months, the agency will review all FHA loans originated over the preceding two years, FHA Commissioner David Stevens wrote in a memo to lenders. For the first review, covering loans made through Dec. 31 of last year, HUD will terminate any lender whose default and claim rate was more than triple that of its region and higher than the national rate.
Over time it will get tougher to stay on the FHA roster. Beginning with the review of loans originated through Dec. 31 of this year, a default rate more than double the regional rate and higher than the national one will get a lender booted.
HUD said it will take into account changes in a lender's circumstances, the volume of loans and whether a lender is operating in an underserved area. Lenders can appeal termination within 30 days of receiving notice. A terminated lender can be reinstated after six months, but first must undergo an independent analysis to determine why its defaults were so high.