CUNA Comment Letter

Federal Housing Administration Risk Management Initiatives

August 16, 2010

Regulations Division
Office of General Counsel
Department of Housing and Urban Development
451 7th Street, SW – Room 10276
Washington, DC 20410-0500

RE: Docket No. FR-5404-N-01 – Federal Housing Administration Risk Management Initiatives

To Whom It May Concern:

The Credit Union National Association (CUNA) appreciates the opportunity to submit comments in response to the proposed changes to certain policies that are intended to reduce the risk of loans insured by the Federal Housing Administration (FHA). The proposal would change: 1) the credit score requirements, although the FHA is also considering a temporary exemption for borrowers who refinance current loans; 2) the level of seller concessions; and 3) the standards for loans that are underwritten manually. CUNA represents approximately 90 percent of our nation’s 7,800 state and federal credit unions, which serve approximately 92 million members.

Summary of CUNA’s Comments


The purpose of the proposal is to strengthen the reserves of the fund that covers FHA losses, although the FHA indicates that few borrowers who do not meet these proposed standards have received FHA loans in the past. This is a goal CUNA supports and understands that these changes should be made in order to maintain the viability of the FHA loan program in light of the current delinquency and foreclosure rates for FHA loans.

Under the proposal, borrowers with credit scores as developed by the FICO Corporation of less than 500 would no longer qualify for FHA loans. Those with scores between 500 and 579 would be required to make a minimum 10% down payment. Currently, there is no overall minimum credit score requirement, although those with scores under 500 must make a minimum 10% down payment.

CUNA supports this proposed change as it will require borrowers to demonstrate that they have the ability to meet their credit obligations before they obtain financing for one of the largest purchases that they will make in their lifetime. We could also support stricter standards if they are imposed on a graduated basis, especially since a number of credit unions will not even offer a mortgage loan to those with a credit score of less than 580. For example, risk to the FHA fund that covers losses could be further reduced if borrowers with credit scores of between 500 and 579 were required to make a 20% down payment, which we would view as a very reasonable requirement, while imposing a 10% down payment requirement for borrowers with somewhat higher credit scores, such as those with scores in the 580-650 range.

In the proposal, the FHA indicated that it would consider a temporary exemption for borrowers who refinance loans. We agree with this approach, but believe that this exemption should be restricted to an interest rate reduction refinance only. Borrowers who may have low credit scores but have made timely mortgage payments should have greater flexibility to refinance their loans than those who have recently been late on their mortgage payments or have recently completed a loan modification.

Under the proposal, the amount of the buyer’s closing costs that may be paid by the seller for FHA loans would be reduced from 6% to 3% of the purchase price of the home, which would be comparable to the current industry standard. CUNA supports this change as this would require a more serious commitment from borrowers and should also help reduce risks to the fund that covers FHA losses. Higher seller-paid closing costs generally results in a higher sales price, in which case the borrower will ultimately pay the fee anyway.

Thank you for the opportunity to comment on these proposed changes to certain policies that are intended to reduce the risk of loans insured by the FHA. If you have questions about our comments, please contact Senior Vice President and Deputy General Counsel Mary Dunn or me at (202) 638-5777.


Jeffrey P. Bloch
Senior Assistant General Counsel