Above photo – courtesy of Matthew Staver/Bloomberg via Getty Images
Home ownership is the key asset for most homeowners. To help fund the purchase of a home, FHA (Federal Housing Administration) has been a vital mortgage program to help define middle-class status.
The mortgage crisis of 2008 forced many leaders to shut down. However, it was the FHA program which became a safety zone for borrowers needing legitimate financing featuring low down payment. It also allows lenders who were on the fringe to use the program to help stabilize their business.
Recently FHA made some changes to the program. It has been the projected approximately 40,000-50,000 borrower per year will be affected and some in that population are in jeopardy in being able to ultimately qualify for a mortgage. Due to current mortgage data there has been an increase in borrowers opting for cash-out. Additionally, debt-to income levels have seen an increase and overall credit scores have declined.
“We have continued to endorse loans with more and more credit risk,” said FHA’s Chief Risk Officer Keith Becker. “We felt that it was appropriate to take some steps to mitigate the risks we’re seeing.”
Those factors are just three highlighted by FHA now requiring those who may be considered less creditworthy but still in the ballpark of qualifying for a mortgage will no longer be able to use automated underwriting. Instead, due to their marginal circumstance, their loan package must now be manually underwritten. For lenders going back to the traditional process will be costlier to them due to the time required to conduct the underwriting. Due to the manual process, lenders may not be as eager to approve the loan fearful in the event of default their decision could be challenged and result in buy-backs or other negative impacts, which could affect their business.
“it’s likely that many of the loans flagged for manual underwriting won’t end up passing muster.” Chief Risk Officer Keith Becker, FHA
So, while owning a home is still considering “the American Dream” the key to making it a reality is making sure your credit package is not part of the projected population. Of course, for some they very well may be willing to take a chance and go through the manual underwriting gauntlet as some will be successful.