WASHINGTON The Federal Housing Administration on Thursday revamped how it will classify loan defects and assess the severity of underwriting errors.
The agency currently uses 99 different codes to describe underwriting faults, but said going forward it will employ nine defect categories, such as borrower income, loan to value/maximum mortgage amount and borrower assets.
The new approach is supposed to help FHA lenders identify underwriting issues and reduce errors that could lead to enforcement actions, according to Edward Golding, the Department of Housing and Urban Development's principal deputy secretary.
"This new guidance gives lenders greater insight into how FHA will capture defects and their relative severities," Golding said in a press release issued Thursday afternoon. "By enhancing our approach, lenders will have more confidence in how they interact with FHA, and we anticipate will be more willing to lend to future homeowners who are ready to own."
Several large lenders have reduced their FHA lending activities following allegations of originating non-compliant loans. In February 2014, JPMorgan Chase entered into a $614 million settlement with the Justice Department and HUD Inspector General for its underwriting practices involving FHA-insured loans.
FHA has not set an effective date for its revised taxonomy.
"Posting the information now provides insight to lenders on the future approach" to loan defects, the agency said. "This allows time for lenders to consider any changes or updates they may want to make to their internal quality control processes as a result."