I'm not being pro-bank here, but if the bank followed the FHA guidelines, then they shouldn't be responsible for borrower's default on the loan. And FHA will only insure up to 20% of the appraise valued during the time of purchase. Any additional losses beyond that 20% and the bank is losing money. Why would any bank go along with the FHA program? Maybe it's time to end the program and all this should be done with PMI.
In October, the FHA proposed a new regulation forcing lenders to reimburse the government for insurance claims on defaulted mortgages that did not meet its guidelines within five years of the endorsement. It would require all new and existing lenders with the ability to insure loans on behalf of the Department of Housing and Urban Development to meet stricter performance standards.
Read it allThe MBA said the proposal would help strengthen the FHA's reserve fund, which an independent study showed would return to the congressionally mandated 2% in 2015. But the MBA said the rules are "overly strict."