FHA Tightening Lending Standards

March 27, 2019
First-time and low-income homebuyers may have more difficulty purchasing a home due to a policy shift by the Federal Housing Administration, which insures federally-backed mortgage loans.
Photo: Unsplash/Nikita Ignatev

First-time and low-income homebuyers may have more difficulty purchasing a home due to a policy shift by the Federal Housing Administration, which insures federally-backed mortgage loans.

The FHA is reintroducing manual underwriting requirements that were removed in 2016, tightening lending on higher-risk mortgages. As a result of this change, mortgage applicants with lower credit scores and those who are carrying higher debt burdens will be reviewed more strictly. CBS News reports that the rule change may impact between 40,000 to 50,000 borrowers annually; the FHA insured more than 1 million mortgages in 2018 for single-family homes.

 

The agency said it saw an increase in the high-risk mortgages it's backing after it removed manual underwriting requirements. Last year, it found that average credit scores for borrowers fell to 670, the lowest in more than 10 years. The FHA is concerned that backing higher-risk loans can potentially lead to defaults, depleting cash reserves the federal agency uses to insure mortgages.

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