New performance metric will track FHA lenders’ practices

August 20, 2015

WASHINGTON (8/20/15)--A new performance metric released by the Federal Housing Administration (FHA) this week aims to evaluate the practices and impact of FHA-approved lenders.

The Supplemental Performance Metric is designed to offer a deeper insight into a lender’s specific performance while encouraging service to eligible underserved borrowers.

The FHA currently calculates a “compare ratio” for all FHA-approved lenders that compares a lender’s rate of early defaults and claims for insured single-family mortgage loans with other approved lenders in a geographic area. This is used to identify lenders with excessive default and claim rates compared with their peers and which lenders FHA may terminate.

The new metric complements the compare ratio by measuring default rates and claims in three distinct credit bands, which the FHA hopes will provide a “more granular, nuanced look at lender performance, with the added benefit of better understanding of who lenders are serving,” according to the agency.

According to the FHA, allowing approved lenders to see the impact of their business at all ends of the credit spectrum aligns with the agency’s mission to ensure loans to eligible borrowers with lower credit scores.

The metric was first proposed by the FHA in the spring of 2014, and is available in the FHA’s Neighborhood Watch Early Warning System, a secure application that provides data on the performance of loans from FHA-approved lenders.