TopMortgage Compliance Update (1)
September 20, 2010
FHA: Multifamily Changes and Proposals

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Overview
On September 17, 2010, FHA Commissioner David H. Stevens issued a letter in which he discussed various new risk management requirements involving FHA's multifamily housing programs, initially introduced on July 7, 2010.

The changes are meant to update underwriting policies, increase lender and underwriter quality, and align loan application, review and approval standards.

We highlighted these changes in our Mortgage Compliance Update (FHA: New Oversight of Multifamily Risk: 7/7/10).

In this most recent letter, Commissioner Stevens indicates that other additional Multifamily initiatives are underway.

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Highlights
Heightened Standards for Lender and Underwriter Qualifications
  • All new and existing multifamily lenders and underwriters will undergo an additional screening process to insure that they are qualified and experienced before receiving approval to participate in specialty insurance program. A separate approval will be required to offer the agency's more complex insurance programs, such as those for new construction, substantial rehabilitation and Low Income Housing Tax Credits.
Time Frame: Qualifications will become effective later in the Fall, through the issuance of a mortgagee letter.

Update to the Multifamily Accelerated Processing (MAP) Underwriting Guide
  • Will be updated and revised to incorporate all Mortgagee Letters, Housing Notices, and administrative guidance that have been issued since it was first published, along with new chapters on affordable housing underwriting and environmental requirements and expanded chapters on market studies, commercial income and mortgage credit analysis.
Time Frame: New MAP Guide is expected in January 2011.

Standardization of Underwriter's Narrative and Application File Contents
  • To assure critical analysis of the risks of proposed transactions by MAP underwriters, a standard underwriter's narrative will be used for applications submitted under all insurance programs. and also requiring a standard table of contents be used to organize application submission.
Time Frame: Lenders will be required to use the standardized forms on all new applications by January 2011.

Loan Committee
  • A new loan committee approval process will align Hub and Program Center commitment authority and practice to ensure consistency in underwriting throughout the regional offices, as well as to provide a platform to share best practices. Loan committees at the Hub and National levels will provide oversight for most transactions in the multifamily insurance program, depending on loan size and a project's number of units.
Time Frame: The notice implementing the Hub and National Loan Committees was issued in early August and became effective this month. The National Loan Committee has begun operating and has a regularly scheduled weekly meeting. The HUB Loan Committees will begin operating later this month.

Multifamily Credit Watch
  • An objective, point-based system, based on one in use by Single Family, will track multifamily lender performance, material violations of FHA underwriting standards and the rate of loan defaults and claims paid. Under the new Multifamily Credit watch monitoring system, each lender's underwriting and loan performance will be compared to that of all other lenders in the MAP program. Based on that review, lenders may be placed on probation, suspended or could have their approval terminated.
Time Frame: The Multifamily Credit Watch system will be published as a proposed Rule for a 30-day comment period later this month. After comments are received, a final Rule will be issued by the end of this year.
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FHA Commissioner David H. Stevens, Letter
September 17, 2010


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