FHA Co-insured Mortgage: Loss shared between lenders and FHA

Sam

The FHA or the Federal Housing Administration approves a certain kind of mortgage program in which the FHA and original lender shares the risk of loss in case of any default by the borrower. This kind of a program is referred to as the FHA co-insured mortgage program.

Under this program, the FHA assigns the lenders certain underwriting functions that are generally performed by the organization. So it cannot be assured that the lenders will be following the underwriting guidelines of the FHA as is the case with other FHA approved mortgages. So the default risk in case of FHA co-insured mortgages may not be equivalent to that of other mortgages insured by the FHA. Therefore, the likelihood of future default or the rate of prepayment on coinsured mortgages may not be comparable to that of other mortgage products insured by the FHA.

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