In 2019, the Federal Housing Agency (FHA) is planning to crack down on first time home buyers due to the concern of too many risks with loans in the future not being able to be repaid.
Earlier this month, lenders were told more loans with first time home buyers were often a higher risk. The FHA is becoming worried that borrowers can’t repay their loans from the lenders which can lead to a drain in the agency’s reserves. This is resulting in over 50,000 mortgages at risk every year. According to the FHA, these are homes to buyers of low credit scores and extensive loans. The FHA is now making borrowers go through a more extensive and strict underwriting process.
“We have continued to endorse loans with more and more credit risk,” Keith Becker, the agency’s chief risk officer, spoke with Wall Street Journal. “We felt that it was appropriate to take some steps to mitigate the risks we’re seeing.” This could mean that it may become more difficult for first time homeowners to obtain an FHA mortgage. According to Becker, who spoke to WSJ, this leads to 40,000-50,000, 4% to 5% loans a year to feel the effect.
In 2016, the FHA eased up on underwriting by removing a rule of manual underwriting of credit scores lower than 620 as well as debt-to-income ratios of 43%. “Since that happened, we have observed a steady increase in the endorsement of higher-risk loans,” Becker says.
Within the past fiscal year, borrowers average credit score has dropped the lowest it has in a decade to 670. About a quarter of FHA mortgages were to borrowers of a debt-to-income ratio greater than 50%.
We encourage you to take action soon before these rules are fully put into effect and the buying process becomes more difficult. By acting now, it is more likely for first time home buyers to get the loans they need for their mortgage. Visit Myrtle Beach Real Estate at https://www.myrtlebeachone.com for assistance in finding and securing your home or property.