MBA Releases Study on Lender Perspectives of FHA

Title: MBA Releases Study on Lender Perspectives of FHA

Date: 8/1/2006

Author(s): MBA

Executive Summary:

Lenders see the lack of a zero-down payment loan product as a major reason for the decline in market share for the Federal Housing Administration (FHA) according to a study released today by the Mortgage Bankers Association (MBA). The study, "Lender Perspectives on FHA's Declining Market Share," was commissioned by the Research Institute for Housing America (RIHA), a 501(c)(3) trust fund of MBA, and conducted by Bernadette Kogler, Ann Schnare and Tim Willis of the Hollister Group. 61 lending institutions of varying size and with varying degrees of experience with FHA participated in the study.
"With legislation pending in Congress, this study provides relevant and timely information to MBA members and policymakers regarding the FHA program," said Doug Duncan, MBA chief economist and senior vice president of research and business development. "Lenders see value in FHA but there are barriers that FHA needs to overcome to allow it to provide additional options for borrowers and to be more user friendly for lenders."

Key findings from the study include:

  • Over two-thirds of lenders believed that FHA's lack of product offerings was a major factor underlying its declining market share.
  • Almost 70 percent of lenders reported that the addition of a zero-down payment product to FHA's product line would result in a "significant" or "major" increase in the number of FHA loans that they originate.
  • One-third of lenders believed that an expanded product line would lead to a "significant" or "major" increase in their FHA volume.
  • 46 percent of lenders believed that a stronger cash-out refinance program would make FHA programs significantly more competitive, particularly in the current interest rate environment.
  • 62 percent of lenders identified the closing and post-closing process of FHA loans as a "significant" or "major" contributor to higher origination costs of FHA loans.
  • Survey results also suggest that there is a consistent interest in FHA lending and that there are numerous opportunities to improve FHA program offerings.

Since the survey was administered, the U.S. House of Representatives passed H.R. 5121, Expanding American Homeownership Act of 2006, legislation which empowers and revitalizes the Federal Housing Administration (FHA). Additionally, the FHA has made a number of enhancements to its programs and processes. The HUD-92564-VC form, commonly known as the "VC Sheet" which appraisers were required to complete while reviewing a property's condition, has been retired. Additionally, HUD's recently announced Lender Insurance program and new appraisal protocols are expected to address the cumbersome workload in the closing and post-closing process of FHA loans. In fact, 61 percent of lenders said that they would participate in the program and 87 percent were planning to participate anticipated a decline in the average cost of FHA loan originations.

"The retirement of the VC Sheet and announcement of the Lender Insurance program are steps in the right direction for FHA," said Duncan. "Other issues that have been uncovered in this survey would require congressional action for changes to be made and MBA plans to support such action."