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HUD Archives: News Releases

HUD No. 98-100
Further Information:For Release
In the Washington, DC area: 202/708-0685Tuesday
Or contact your local HUD officeMarch 3, 1998


WASHINGTON - A powerful new computerized loan evaluation system will cut the time it takes to evaluate a homebuyer's application for an FHA-insured mortgage from four weeks to two minutes, dramatically reduce paperwork, and enable more families to qualify for FHA mortgages, Housing and Urban Development Secretary Andrew Cuomo announced today.

"We can now evaluate an FHA mortgage application in just two minutes - more than 20,000 times faster than before," Cuomo said. "We're changing the process of getting an FHA mortgage from an exhausting marathon to a 50-yard dash, and we're helping more families cross the finish line."

Speaking at a news conference with Freddie Mac Chairman and CEO Leland C. Brendsel, Cuomo said he has signed an agreement with Freddie Mac that will enable FHA to use a new version of Freddie Mac's Loan Prospector‚ system to evaluate homebuyer applications for FHA mortgage insurance in just two minutes.

`"FHA will now be able to serve more American homebuyers faster, better, and for less money," Cuomo said. "This is the latest in a series of management reforms we've implemented in the past year to improve FHA. We've cut red tape, consolidated our offices and brought in new technology to make the American Dream of homeownership a reality for more families."

Brendsel said: "Freddie Mac created Loan Prospector (was linked to http://www.hud.gov/fha/sfh/svg/loanpros.html) as part of our ongoing efforts to reduce costs for mortgage borrowers and provide tools for lenders to expand their markets. The commitment to enabling more people to own homes of their own is one we share with HUD. I'm delighted that FHA borrowers will have access to the benefits of automated underwriting."

FHA (Federal Housing Administration) is part of HUD and provides insurance for mortgage loans to expand homeownership opportunities, particularly among low- and middle-income families. FHA currently insures about 750,000 mortgages each year. Since being created in 1934, FHA has helped more than 24 million American families become homeowners.

Freddie Mac is a government-sponsored enterprise - a stockholder-owned corporation with a Congressional charter - that buys mortgages from lenders, packages them into marketable securities, and sells them to investors. Freddie Mac was created by Congress in 1970 to create a continuous flow of funds to mortgage lenders in support of homeownership. Over the years, Freddie Mac has helped finance one in six American homes.

Cuomo said Loan Prospector for FHA will benefit homebuyers by:

  • Reducing anxiety caused by uncertainty and long delays in the approval process for FHA mortgage insurance.

  • Cutting paperwork that homebuyers must fill out to qualify for FHA insurance by eliminating the need for as many as 25 of the documents now required.

  • Using a more accurate loan evaluation system to enable thousands of borrowers now unable to qualify for FHA mortgage insurance to qualify for the insurance each year.

Cuomo said the new FHA version of Loan Prospector will be available immediately to all FHA-approved direct endorsement lenders who use Freddie Mac's Loan Prospector. These lenders make the vast majority of FHA-insured home mortgage loans each year. Over the course of this year, FHA will work with Freddie Mac to develop FHA's own high-speed loan evaluation model that will then be available to all FHA lenders.

If Loan Prospector for FHA shows that a homebuyer does not initially qualify for a particular loan, the application will be referred back to the lender. The lender will then review the application to determine if special circumstances will permit the loan to be approved or if the borrower can take additional steps to qualify for the mortgage. For example, people whose income dropped temporarily due to short-term unemployment or who faced unusual one-time expenses for health care or other emergencies could qualify for an FHA-insured mortgage even if Loan Prospector initially determines they don't meet the requirements.

"We'll have high-speed evaluation of loans, but not high-speed rejections," Cuomo said. "When borrowers need help to qualify for loans, they'll deal with people - not computers."

Loan Prospector logs on to credit databases and performs a computerized evaluation of a homebuyer's loan request, credit history, income, assets and debts to determine if the person qualifies for a mortgage loan - all in just two minutes.

The same evaluation process - known as underwriting - takes about four weeks when performed by a lender without the aid of a computerized loan evaluation program.

After homebuyers get their two-minute evaluation for FHA insurance from Loan Prospector, they are told if they must submit any additional information to verify their income and assets. In addition, the lender obtains documentation of information the homebuyers have provided - such as an appraisal report on the home being purchased, records of title insurance and a property survey. Final approval of an FHA-insured loan can then come in a week or two.

In a pilot project with Freddie Mac and 11 lenders over the past year, FHA used the new version of Loan Prospector tailored to FHA needs to evaluate about 15,000 loan applications. The 11 lenders are: AmerUs Mortgage, Chattanooga Neighborhood Enterprise, Colonial Mortgage, Countrywide Mortgage, County Mortgage, Crestar Mortgage, Flagstar Bank, McCue Mortgage, North Carolina Housing Finance Agency, Norwest Mortgage, and Zions Mortgage.

FHA does not make mortgage loans directly, but rather insures loans made by private lenders to homebuyers. FHA insurance guarantees the lender timely payment of principal and interest, in the event the homebuyer defaults on the loan. Because the FHA mortgage insurance protects lenders from losses, it enables millions of Americans who would otherwise have been locked out of the mortgage market and homeownership to qualify for mortgages.

FHA-insured loans benefit homebuyers in these ways: 1) Downpayments as low as 3 percent are required - lower than the minimum that lenders require for non-FHA mortgages. High downpayments are a major roadblock to homeownership. 2) Homebuyers can borrow closing costs in their mortgages - something often not permitted with many non-FHA mortgages. 3) FHA's requirements for homebuyer credit ratings are more flexible than those set by many lenders for non-FHA borrowers. 4) FHA permits homebuyers to use gifts from family members and non-profit groups to make their downpayments, while conventional loans generally require homebuyers to come up with downpayments on their own. 5) FHA permits a borrower to carry more debt than a private mortgage insurer would allow.

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