CUs willing to make smaller balance FHA loans, face barriers

Credit unions are willing to make smaller balance loans that are less profitable compared to other financial institutions, CUNA wrote to the Department of Housing and Urban Development (HUD) Monday. HUD issued a Request for Information on small mortgage lending under Federal Housing Administration (FHA) programs.

“Credit unions’ interest in their members’ financial well-being and advancing the communities they serve takes on paramount importance,” the letter reads. “As such, credit unions are willing to make smaller balance loans that are less profitable compared to other financial institutions. Many credit unions either do not have minimum mortgage amounts or have much lower minimum mortgage amounts than others in their market.

Highlights include:

• Credit unions report FHA property standard requirements as a significant barrier, particularly on the less-expensive side of the housing market. While intended to benefit the borrower, the protections come at a significant price for borrowers not able to obtain agreements in a competitive market.
• Credit unions report a “more robust path” for delivering mortgages for borrower with less credit would also be helpful. Several alternative scoring models are now being validated by the Federal Housing Finance Agency.
• Increased FHA flexibility regarding gifts would be helpful. Requiring that credit unions obtain bank statements from parents or other family is often a duplicative and overly burdensome requirement to verify a contribution to the loan.
• Credit unions report that the costs of origination and servicing of small balance FHA loans are quite high, particularly those securitized through the Government National Mortgage Association (GNMA).