FHA Pushes Loans to Lower-Credit-Score Borrowers

Category: National Mortgage News Published: Thursday, 16 October 2014 Written by Admin

The Federal Housing Administration is pressing banks to make more home mortgage loans to borrowers with lower credit scores, National Mortgage News reports:

The FHA expects 75% of the loans it insures from now on will be made to borrowers with FICO scores of 680 or below, an FHA official told a group of risk managers Monday. ...He said he is far more concerned that the share of FHA borrowers with credit scores between 640 and 680 is half the size of what it used to be. Lenders have essentially retreated from lending to that segment of the market, resulting in the loss of a borrower class over the last 10 years, he said...In 2007, at the beginning of the financial crisis, 55% of FHA-insured loans went to borrowers with FICO scores below 640. Moreover, 30% of those loans were to borrowers with scores below 580, which ultimately hit the agency with a massive wave of defaults.

That was way too far on the risk spectrum, Vetrano admitted. Were shooting for a happy medium between those two.

The FHA now expects 25% of the loans it insures will be to borrowers with FICO scores of 640 or below. Another 50% will go to those in the middle ground of 640 to 680. The remaining 25% will be to those borrowers with scores above 680.

This is an example of the detail the government goes into in telling banks how to operate. If these loans go bad in some future housing downturn, who will get the blame for the ensuing forclosures and economic downturn -- the banks and bankers, the FHA, or both?

Thanks to reader-participant-community member-watchdog-content co-creator A. for sending the tip.

by Editor | Sep 11, 2014 at 10:43 am Related Topics: Banking, Housing receive the latest by email: subscribe to the free futureofcapitalism.com mailing list

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