Concern Seen in FHA Refi Program

Lenders and servicers choosing to participate in a special Federal Housing Administration refinancing program will have to worry about "second guessing" by FHA, which has a reputation for seeking indemnification for losses when loans go into default, according to mortgage banking attorney Laurence Platt. "Presumably, lenders that closely follow the new underwriting requirements developed by the [Hope for Homeowners Oversight] Board will be insulated from attack by FHA," the K&L Gates partner says in a Mortgage Banking Alert to clients. However, the Hope program loans are expected to have high default rates because lenders will be refinancing subprime borrowers that have defaulted or are expected to default. "It will be interesting to see how 'squishy' the new underwriting guidelines are, because the risk of second-guessing is greater when the standards are more ambiguous," the Sept. 2 alert says. Meanwhile, the House Financial Services Committee is holding a hearing Sept. 17 to see if FHA and the oversight board will be ready to launch the Hope program by Oct. 1. Committee chairman Barney Frank, D-Mass., also wants to know if servicers are holding off on foreclosures for borrowers who might be refinanced through the Hope program.