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CHLA urges FHA to pay lenders for small-balance mortgages under $100,000
The group argues fixed origination and servicing costs often make these small FHA loans unprofitable for lenders, and says direct payments would be the primary tool in a planned pilot.
HousingWire reports that the Community Home Lenders of America is urging the Federal Housing Administration to use direct payments to lenders as the main mechanism in a small-dollar mortgage pilot for loans under $100,000.
In a comment letter dated July 16 addressed to acting FHA Commissioner Joseph Gormley, CHLA said lenders generally lose money originating small-balance FHA mortgages because fixed origination costs and servicing challenges can outweigh the revenue from lower loan amounts.
The proposal is tied to Section 105 of the 21st Century ROAD to Housing Act, which authorizes FHA to run a pilot to expand access to mortgages below $100,000. The law also allows the agency to adjust FHA loan terms and costs, and to offer grants to borrowers for expenses such as down payments, closing costs, appraisals and title insurance.
CHLA cited an Urban Institute analysis showing that about 600,000 U.S. homes, or 13.1% of home sales in 2020, sold for under $100,000, but only about one-third of those sales used a mortgage. The group also pointed to evidence that mortgage applications under $100,000 are more likely to be denied, and said its members concluded direct payments are the most effective, if not the only, way to measurably increase FHA originations of these smaller loans.