March 27th, 2019 8:23 AM by Jackie A. Graves, President
The Federal Housing
Administration has announced tighter lending standards, which could put up to
50,000 mortgages in jeopardy annually. The FHA insures mortgages for
first-time home buyers and often borrowers with low credit scores and high loan
payments relative to their incomes. The clampdown is on lending rules that
the FHA believes are allowing too many risky loans to be approved.
The FHA says
it will begin to flag more loans as “high risk.” Loans will go through a
rigorous manual underwriting process, the agency says. The FHA claims it wants
to ensure that it isn’t issuing loans to borrowers who can’t repay and better
protect itself against an uptick in defaults that could ultimately deplete its
to 50,000 loans a year will likely be affected by the tighter underwriting
standards, or about 4 percent to 5 percent of the FHA-insured mortgages
originated annually, Keith Becker, the FHA’s chief risk officer, told The
Wall Street Journal.
continued to endorse loans with more and more credit risk,” Becker told WSJ.
“We felt that it was appropriate to take some steps to mitigate the risks we’re
In 2016, the
FHA loosened up its underwriting standards, such as removing a prior rule that
required manual underwriting for mortgages with credit scores below 620 and
debt-to-income ratios above 43 percent.
happened, we have observed a steady increase in the endorsement of higher-risk
loans,” Becker says. In a November report to Congress, the FHA revealed threats
to its program that could drain its resources, including a sharp increase in
borrowers with high debt-to-income ratios and a drop in average borrower credit
previous fiscal year, the average credit score for borrowers of FHA-insured
mortgages dropped to 670, the lowest in a decade. Nearly a quarter of
FHA-insured mortgages were issued to borrowers with a debt-to-income ratio higher
than 50 percent.
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