The American Bankers Association is questioning why HUD is opening the door for Farm Credit System lenders to originate FHA loans while it making it harder for rural community banks to remain in the same program.
In letter to Housing and Urban Development secretary Shaun Donovan, ABA charges that HUD has imposed “overly burdensome” and “costly” audit requirements on direct endorsement lenders that “will drive many community banks from the FHA program.”
Meanwhile, HUD has issued a proposed rule that allows Farm Credit institutions to participate in the FHA program.
ABA president and chief executive Frank Keating points out that community banks view the FCS as a “tax advantaged, government sponsored competitor.”
Moreover, the ABA CEO contests HUD research that says there has been a reduction in the availability of housing finance in rural areas.
“ABA’s own research and member feedback indicate that there is no such reduction in overall financing in rural areas. Further, to the extent that some reduction may be forthcoming, it will likely be driven by HUD’s own audit policies, which will drive taxpaying community banks from the market,” Keating says in a newly released letter.
Extending FHA lender eligibility to the Farm Credit System would provide an “additional avenue for mortgage financing in rural areas,” HUD says in the proposed rule issued late this summer. The comment period ends Oct. 25.
“As lenders strive to increase capital reserves and tighten underwriting standards, and as private mortgage insurers retreat from some markets, the availability of financing for housing is reduced, particularly in rural areas,” the HUD proposal says.
FCS lenders funded 44,000 single-family loans in 2010. HUD estimates they could originate another 2,200 loans if granted access to the FHA program.
