FHA Clamping Down On New Mortgages

The Federal Housing Administration told lenders this month it would begin flagging more loans as high risk. Those mortgages, many of which are extended to borrowers with low credit scores and high loan payments relative to their incomes, will now go through a more rigorous manual underwriting process, the FHA said.
FHA-backed borrowers are a critical buyer universe for home builders, especially those builders whose products and communities serve the needs of rising rent refugees, and would-be homeowners who can't access decent options in an existing home marketplace that offers very little at the low end of the price continuum.
The FHA's chief risk officer Keith Becker, the WSJ reports, estimates that as many as 40,000 or 50,000 potential borrowers--4% to 5% of FHA-insured mortgages--will be "affected" as the agency tightens lending standards via its Total Mortgage Scorecard to reduce exposure to failed loans.
This new Total Mortgage Scorecard algorithm will likely delay or disqualify some percentage of buyers and borrowers who fit higher-risk profiles and yet represent a solid, performing loan. That may not add up to a massive population of new-home buyers at the entry-level, but every little bit helps, or hurts.


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