FHA clamps down on risky government-backed mortgages

WASHINGTON – March 26, 2019 – The Federal Housing Administration (FHA) informed lenders that it will start flagging more high-risk loans. Those mortgages, many of which are extended to borrowers with low credit scores and high loan payments relative to incomes, will undergo a more rigorous manual underwriting process.

The FHA worries that lenders are making loans to borrowers who cannot repay them – and that will result in a jump in defaults that strain the agency’s reserves.

The decision to tighten underwriting standards could mean that fewer first-time home buyers are able to secure mortgages.

FHA Chief Risk Officer Keith Becker says approximately 40,000 to 50,000 loans per year would likely be affected – about 4 percent to 5 percent 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.”

Source: Wall Street Journal (03/26/19) P. A2; Eisen, Ben