FHA Provisions Stir Anger Among Lenders

The Federal Housing Administration section of a massive housing bill is causing heartburn for lenders because they will have to abandon a newly implemented risk-based pricing structure. The Department of Housing and Urban Development mandated implementation of the RBP structure by July 14, but the housing bill imposes a 12-month moratorium on risk-based pricing starting Oct. 1. "Lenders are angry at HUD and Congress," said Brian Chappelle, a mortgage banking consultant in Washington. It cost millions of dollars to implement risk-based pricing, and "now it will cost millions of dollars to straighten it out," he said. HUD also has to convert back to charging a standard upfront mortgage insurance premium for all borrowers. "Now, FHA will be required to increase prices on all customers," HUD Secretary Steven Preston said. And it will require HUD to eliminate the newly expanded FHA Secure program that relies on RBP, he added. Before July 14, the standard upfront premium was 1.5%. Some expect the FHA to raise the premium to 2%, but HUD could raise it up to 3% under a provision of the housing bill.