FHA clamps down

The Federal Housing Administration (FHA) informed lenders that it’s going to start flagging more high-risk loans. Those mortgages, most of which are extended to borrowers with low credit scores and high loan payments in accordance with incomes, will undergo a more rigorous manual underwriting process.

FHA clamps down on risky government-backed mortgages

The FHA worries that lenders are responsible for loans to borrowers who cannot repay them – which will lead to a jump in defaults that strain the agency’s reserves.

The decision to tighten underwriting standards signifies fewer first-time home buyers have the ability to secure mortgages.

FHA Chief Risk Officer Keith Becker says approximately 40,000 to 50,000 loans annually would probably be affected – about 4%t to 5% of the FHA-insured mortgages originated annually in recent years.

“We have continued to endorse loans with more and more credit risk,” Becker says. “We felt that it was appropriate to take some steps to mitigate the risks we’re seeing.”

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