By Kevin Chiu
The Federal Housing Administration (FHA) will toughen its standards to approve mortgage lenders doing business with the government, and 
force more banks and mortgage companies to buy back defaulted mortgages in a major move to crack down on mortgage lenders.
The federal government’s changes are part of an effort to improve mortgage lending conditions and reduce losses on home mortgages as result of billions of dollars in losses suffered at the nation’s mortgage giants, Freddie Mac and Fannie Mae.
FHA Commissioner Carol Galante said the changes will help the agency protect its mortgage insurance fund, which is in jeopardy of needing a government bail-out.
“FHA must continue to strike a balance between managing risks to its insurance funds and ensuring that FHA products are offered as widely as possible to qualified borrowers,” said Galante. “We hope that the added clarity and certainty provided through these rules will enable lenders to extend financing opportunities to larger numbers of American families as the nation’s housing market and economy continues to recover.”
For mortgages insured by the Lender Insurance lenders program through Housing and Urban Development, the government agency may require banks and mortgage firms to indemnify FHA for “serious and material” violations of mortgage qualifying requirements, and for fraud and misrepresentations.
Under the new changes, lenders must demonstrate a two-year seriously delinquent and claim rate below 150% of the aggregate rate for states where the lender does business. FHA will also monitor lender performance on an ongoing basis to ensure lenders meet the program’s eligibility standards.
The FHA will also reduce the maximum amount homeowners selling their homes with government backed mortgages can credit in seller concessions to purchasers under a separate revision expected to be adopted later in the year.