Revival May Aid FHA Servicers.(Federal Housing Administration)

Washington -- As the Federal Housing Administration tries to revive its single-family program and increase market share, servicers could see a turnaround in their FHA portfolios.

After years of declining originations and runoff, housing commissioner Brian Montgomery is trying to make FHA financing more attractive to borrowers, lenders and real estate agents.

The commissioner recently increased the amount of funds FHA borrowers can receive in a cash-out refinancing. Currently, FHA borrowers have to maintain an 85% loan-to-value ratio in refinancing a transaction. FHA raised the LTV to 95%, effective Nov. 1.

This increase should make FHA loans more competitive with subprime products. And it means existing FHA borrowers don't have to refinance into a conventional loan to tap the equity in their homes.

Meanwhile, FHA lenders are anxiously waiting for the FHA to announce new appraisal requirements that are more aligned with Fannie Mae and Freddie Mac appraisal standards and forms. Many real estate agents and sellers won't accept offers from homebuyers relying on FHA financing because the appraisal can require repairs to complete sales transaction.

"If they can trim the appraisal requirements and try to get as close as possible to conventional appraisals, that would be a big deal," said Bud Carter, a FHA consultant with Potomac Partners in Washington.

Hopefully these changes and others in the works will boost originations in the years to come and reverse the decline in the FHA SF program.