WASHINGTON – May 13, 2019 – Some first-time and low- to middle-income homebuyers will likely be edged out of the housing market under tougher standards recently adopted by the Federal Housing Administration (FHA), experts say.
The FHA, which insures mortgages for borrowers with spotty credit who can’t afford a larger down payment, said it will put riskier loans through a more rigorous review. That likely will mean a larger portion will be denied while some borrowers may not even apply for the loans in the first place.
FHA officials imposed the stricter criteria because they’re concerned that the agency’s loan portfolio in recent years has included more borrowers who aren’t as creditworthy.
“We’ve seen continued deterioration in credit quality,” Keith Becker, the FHA’s chief risk officer, said in an interview. “We’ve observed a steady increase in credit risk.”
The vast majority of FHA loans are approved through an automated system while a small share are referred to the lenders, who manually review applications based on FHA guidelines. In 2016, the agency eliminated a rule that required manual reviews for all mortgage applications from borrowers with credit scores under 620 and above debt-to-income ratios of 43 percent.
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