e subcommittee held a hearing Thursday to what BusinessWeek has dubbed the ‘new subprime’: Federal Housing Administration (FHA) loans. A consensus among those testifying was that FHA, while already having received appropriations for technology upgrades by way of the Omnibus Appropriations Act of 2009, still needs more funding commensurate with its increased market share. The volume of single-family FHA-insured loans tripled from $59 billion in fiscal year 2007 to over $180 billion in fiscal year 2008. The FHA currently accounts for 30% of the nation's originations, but its staff levels have remained virtually unchanged, said Mortgage Bankers Association (MBA) Chair David Kittle. And as the agency's issuances have increased, so has the number of new lenders approved by FHA. Kenneth M. Donohue, inspector general for the U.S. Department of Housing & Urban Development (HUD), stated that the FHA had over 3,300 approved lenders at the end of fiscal year 2008, compared to 997 at the end of fiscal year 2007 – a 330% increase. Lender approvals for the first half of this year currently total about 1,600. Kittle and Donohue both stressed the need for the FHA to adopt more stringent approval processes and eligibility criteria. Kittle recommended boosting the net worth minimums that are required of mortgagees. He suggested raising the minimum for mortgage bankers up to $500,000 or 1% of FHA loan volume up to a max of $1.5 million, and the minimum for brokers to $150,000 or 0.5% of FHA loan volume up to $250,000. Donohue cited audit work that found lenders with previous transgressions, such as RESPA violations, can potentially tap back into the program. Since the passing in May of the Helping Families Save Their Homes Act of 2009, which authorized $30 million for Donohue's office, HUD's Mortgagee Review Board has taken actions against [link=http://www.mortgageorb.com/e107_plugins/content/content.php?content.3571][u]120 lenders[/u][/link] for violating FHA requirements and [link=http://www.mortgageorb.com/e107_plugins/content/content.php?content.3681]suspended three[/link] others. Appraisals were also a hot topic during the subcommittee hearing. Several of those testifying argued that the Home Valuation Code of Conduct (HVCC), which went into effect at the beginning of May, presents gaps that need attention. MBA's Kittle said that since the HVCC was made effective, appraisers affiliated with appraisal management companies (AMCs) have been "inundated with work, to the exclusion of independent appraisers." And a lack of supervisory standards regarding HVCC appraisal portability – whereby a lender can accept an appraisal produced for another lender but only after receiving written confirmation that the appraisal is HVCC-compliant – is raising the cost to borrowers, he said. The National Association of Mortgage Brokers (NAMB) estimates that the HVCC will ultimately cost consumers over $2.8 billion a year in additional fees, according to NAMB President Marc Savitt. "Specifically, delays in closing caused by the implementation of HVCC are forcing consumers to extend their rate lock periods," he said. Combined with appraisal fee increases, the closing delays are causing an avergage cost increase of $711.95 on every loan originated under the HVCC, Savitt added. National Community Reinvestment Coalition Executive Vice President David Berenbaum, meanwhile, recommended expanding the ban on broker price opinions as "primary means of valuation" for home purchases to include refinance loans. AMCs should also be required to register with state oversight agencies, Berenbau
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