FHA Loan

An FHA loan is a mortgage made by a private lender and insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD). Because the government insures the lender against losses if the borrower defaults, lenders can offer FHA loans to borrowers with smaller down payments and less-than-perfect credit. FHA loans are popular with first-time buyers.

Under HUD policy set in Mortgagee Letter 2010-29, borrowers with a credit score of 580 or higher are eligible for maximum FHA financing, which requires a minimum down payment of 3.5%, while borrowers with scores from 500 to 579 are limited to 90% loan-to-value, meaning at least 10% down. In exchange for these terms, FHA borrowers pay mortgage insurance premiums, both an upfront premium and an annual premium paid monthly, which adds to the cost of the loan. Individual lenders can set stricter requirements than FHA's minimums.

FHA loans connect to litigation in a few ways. Lenders and servicers have faced False Claims Act cases, many started by whistleblowers, alleging they certified loans as meeting FHA standards when they did not, leaving the government to cover losses. Borrowers have brought class actions over servicing practices, such as improper fees, mishandled loss mitigation, or charges for paying online or by phone. Some settlements in this area involve mortgage convenience fees.

If you have an FHA loan and think your servicer charged improper fees, keep your monthly statements, escrow statements, and payment confirmations. The CFPB takes mortgage complaints. Our guide on how to sue a company covers your options.