WASHINGTON – April 1, 2019 – First-time and move-up homebuyers with heavy debt loads, low credit scores and small downpayments face a daunting new mortgage hurdle: The Federal Housing Administration (FHA) is toughening its underwriting standards.
Large numbers of applications could be rejected in the coming months as a result. Industry estimates vary about the impact of the agency’s abrupt changes, but mortgage company executives have told me that they are bracing for reductions in their FHA business by anywhere from 10 to 30 percent.
Here’s what’s happening: For several years, the FHA has insured loans to buyers who previously would have been considered too risky or marginal at best. Those applicants often carried crushing monthly personal debts totaling more than half of their monthly incomes. Many also had histories of credit problems that lowered their credit scores. Combined with skimpy downpayments of 3.5 percent and minimal bank reserves, these borrowers have a high statistical probability of defaulting on their loans.
Source: Copyright © 2019 Washington Post Writers Group, Kenneth R. Harney; Richmond Times-Dispatch, Richmond, VA. Kenneth R. Harney heads his own consulting firm in Chevy Chase, Md.