Certain small banks have stopped originating Federal Housing Administration loans because of the costs of a new audit requirement that went into effect April 1, according to the Independent Community Bankers of America.
"We have heard that a number of them have gotten out of the program," ICBA vice president Ann Grochala told National Mortgage News.
Under pressure from several industry groups, the Department of Housing and Urban Development dropped a proposal to require all banks to submit annual financial audits conducted by a certified public accountant.
FHA carved out an exception for small banks with less than $500 million in assets. However, HUD is still insisting that banks undergo compliance audits to ensure they follow all of FHA's requirements and procedures.
ICBA is advising its members to maintain their status as government approved lenders even if they have stopped making FHA single-family loans.
"We are urging community banks to keep their registration going,” said Grochala. “Don't exit the program -- because we are trying to get some relief.”
Grochala’s official title at the trade group is vice president for lending and accounting policy.
