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The Federal Housing Administration recently informed lenders that it would be flagging more loans as high risk, as part of an overall effort to tighten the manual underwriting process.
The FHA insures mortgages for first-time homebuyers, and the loans that will now be flagged as carrying greater risk include many issued to borrowers with high loan payments relative to income, and low credit scores. The decision stems from the FHA's concern that lenders are issuing loans to borrowers who can't repay, leading to more defaults and greater stress on the FHA's financial resources, Realtor.com reports.
The FHA’s decision to tighten underwriting standards could mean fewer first-time home buyers are able to get mortgages. Roughly 40,000 to 50,000 loans a year likely would be affected, or about 4 percent to 5 percent of the FHA-insured mortgages originated annually in recent years, according to Keith Becker, the agency’s chief risk officer.
“We have continued to endorse loans with more and more credit risk,” Mr. Becker said. “We felt that it was appropriate to take some steps to mitigate the risks we’re seeing.”
