FHA changes aim to deny riskier borrowers

 Loan Guidelines, Residential Mortgage  Comments Off on FHA changes aim to deny riskier borrowers
Apr 272019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Late last month, FHA made some changes to its automated underwriting system that may prevent as many as 50,000 potential borrowers from qualifying for an FHA loan. FHA said the changes are meant to limit exposure of its insurance fund from higher risk situations.

According to the agency’s annual report to Congress, it’s seeing a concentration of mortgages with high debt-to-income ratios and low credit scores. It also reported a 60% increase in cash-out refinances. (This isn’t an issue in TX as TX homeowners cannot take cash out using an FHA loan.)

An FHA official told The Wall Street Journal that the system changes will affect 40,000 to 50,000 loans each year, which is 4 to 5% of all loans FHA insures.

The changes will flag loans with a combination of higher debt-to-income ratios and lower credit scores for “manual underwriting,” which means underwriting performed by a human being. Unfortunately for borrowers, manual underwriting also means more stringent loan guidelines, and many of those who qualified before the system changes no longer will qualify.

Mortgage insurance companies tighten credit

 Loan Guidelines, Residential Mortgage  Comments Off on Mortgage insurance companies tighten credit
Feb 232018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

As you’re probably aware, when buying a home, if your down payment is less than 20%, your mortgage payment will include mortgage insurance. This insurance is the lender’s way sharing some of the risk associated with more highly leveraged loans.

We call companies that specialize in this form of insurance mortgage insurance or MI companies – pretty clever, huh – and they often have special guidelines that apply to loans that require their product.

Recently, the MI companies expressed concern about Fannie Mae and Freddie Mac increasing the amount of debt they’re willing to accept for a borrower receiving a conventional loan. Both now accept loans for which the borrower’s debts equal up to 50% of the borrower’s gross income.

Four of the MI companies announced that starting next month, they will require a 700 credit score anytime the borrower’s debt exceeds 45% of gross income. One company further is requiring a min 5% down payment in such cases. (Recall that it’s possible to get a conventional loan with as little as 3% down.)

I don’t expect this will affect a huge number of borrowers as most folks having lower credit scores and making small down payments find it more advantageous to use the FHA program. However, it does represent the first tightening of credit standards I’ve seen in a while.