Roughly a year after its proposal, the Federal Housing Administration announced yesterday a loosening of lending conditions, allowing “millions” of potential buyers into the market that are currently restricted.
Under the new measurement, the FHA intends to take a deeper dive in evaluating loans that eventually default, which could lead to lenders being stripped of their FHA approval. This measure impacts borrowers with credit scores between 580 and 680.
The metric measures the defaults of borrowers in what the FHA calls “three distinct credit bands,” using an adjusted default rate instead of a weighted average. The lender’s percentage of loans in each band are measured against a benchmark rate for seriously delinquent loans in each band.
Previously, an FHA-approved lender could be cut from the program if their default rate went above a certain threshold, but the new measurement loosens that metric. This segment of lenders has long shied away from this segment of the market to avoid risking their FHA approval, but Uncle Sam intends to change that.
NAR expresses their support
Reactions were mixed, and today the National Association of Realtors (NAR) 2015 President, Chris Polychron sent the following letter of support for the measure to Edward Golding, Principal Deputy Assistant Secretary for Housing at the US Department of Housing and Urban Development:
The takeaway
With this context, will this warm critics’ hearts to the move to loosen what most consider to be overly restrictive lending conditions? Affordability remains the top challenge, keeping many out of the market, but could letting people with a few blemishes on their record but the money to qualify really be such a bad thing?
Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.
