The waiver removes the obligation for FHA-approved lenders to mark declined loans in the FHA Connection system.
On Thursday, the Federal Housing Administration (FHA) made a significant announcement, stating that it would be granting a waiver regarding the requirement for FHA-approved lenders to mark rejected loan applications in the FHA Connection (FHAC) system. This decision is part of the agency’s effort to enhance access to government-insured mortgage financing for qualified borrowers.
The FHA explained its rationale for this move, asserting that the practice of flagging rejected applications in the FHAC system does not substantially contribute to risk management. In fact, it often leads to other lenders rejecting an applicant even when that applicant could potentially meet the criteria for a loan. The current process entails entering denial information on the Mortgage Credit Reject (MCR) screen in FHAC when a mortgagee turns down a borrower’s application for an FHA-insured mortgage.
This action results in a warning flag being associated with both the individual borrower and their case number for a duration of six months. This, in turn, necessitates a review from the regional Homeownership Center (HOC) if a borrower applies for a government-insured loan from a different lender during that timeframe.
The Federal Housing Administration (FHA) has taken a significant step by waiving a specific provision outlined in the Single Family Housing Policy Handbook 4000.1. This waiver means that FHA-approved lenders will no longer be obliged to input rejection information into the FHA Connection (FHAC) system. The primary goal is to simplify the loan underwriting process and eliminate an unnecessary obstacle for borrowers seeking FHA-insured financing.
This waiver will apply to all cases awaiting endorsement on or after September 11, 2023. For cases in progress that already carry the aforementioned rejection flag, these flags will be removed at that specified date, as confirmed by the FHA. Furthermore, starting from that date, the MCR screen itself will no longer be accessible within FHAC.
It’s worth noting that this waiver represents a permanent policy alteration. It will be integrated into forthcoming editions of the Single Family Housing 4000.1 Handbook, according to the agency’s plans. This change is poised to have a lasting impact on the FHA lending process, making it more straightforward for borrowers to secure FHA-insured financing.
