Lenders respond to FHA moves, ARM jitters

WASHINGTON -- Oct. 11, 2006 -- HUD's reforms to the Federal Housing Administration (FHA) loan program to streamline appraisals and enable lenders to charge conventional closing costs have prompted a number of lenders to aggressively market these mortgages to homeowners looking to refinance out of adjustable-rate products.

Experts say the changes have made FHA loans available to borrowers who previously had no choice but to obtain subprime financing.

However, the Mortgage Bankers Association reports higher foreclosure rates for FHA loans than prime mortgages; and consumer advocates say fraudulent income statements and flipping schemes are problems for the FHA program.

Meanwhile, HUD has proposed additional reforms that would hike loan limits, implement risk-based credit scoring and enable borrowers to forego down payment

Source: American Banker (10/10/06) Launder, William

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