Since the financial crisis, brought on by the collapse of the housing market, getting a mortgage has been a frustrating process, even for many creditworthy borrowers.

Overnight, lenders went from very lax standards to very tight ones. Since then, Realtors have argued that just minor tweaks in underwriting rules could lead to an increase in home sales.

On Tuesday the Federal Housing Administration (FHA) proposed new certifications that both lenders and consumer advocates suggest might help more people qualify for a mortgage. The rules softened language that the American Bankers Association (ABA) says could have made lenders shy away from participating in the FHA program by punishing lenders for any mistakes made during the mortgage process.

Protection for lenders

“In this final loan-level certification, FHA is clearly identifying [that] lenders will be held accountable for only those mistakes that would have altered the decision to approve the loan,” FHA head Ed Golding said in a statement. “This important move makes it very clear that minor mistakes that do not affect the decision to approve a loan are not the focus of our compliance efforts.”

Under the proposed new certifications, lenders are only required to certify that “to the best of their knowledge” the information is correct.

Mike Calhoun, President of the Center for Responsible Lending, says the revised certification process still requires lenders to certify that the loan complies with the appropriate rules that protect both consumers and taxpayers.

Should lenders violate the rules, they could face a number of unpleasant consequences, including having to forfeit FHA insurance and buy back any loans they sold under false representations.

Common sense rules

“These common sense rules should be welcomed by prospective homebuyers, lenders and taxpayers,” Calhourn said in a statement emailed to ConsumerAffairs. “The rules provide increased clarity for lenders on the proper standards for making loans to qualified buyers.”

The rule change addresses one of the conditions that has made banks less willing to make mortgage loans. In the past, Calhoun said they feared they would be penalized for any minor error, even if it had nothing to do with the risk involved in the loan.

He said FHA will still need to guide and monitor the application of the new rules to ensure they achieve their goals. But in the end, he says they should result in the lending industry making more safe and affordable mortgage loans.

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