Feds expanding access to mortgage loans
The Federal Housing Administration (FHA) on Monday announced steps aimed at expanding credit to underserved borrowers while easing risk for approved lenders.
The new supplemental performance metric broadens the measurement for a lender’s default performance and is part of an effort to encourage more lending to riskier customers who have been pinched by tight credit conditions.
The change, in the works for more than a year, measures a lender’s default rate within three credit score bands and compares that with an FHA target rate instead of comparing it against the lender’s peers in the market.
{mosads}“This is one more tool to help FHA, lenders and the public know exactly who we’re serving,” said Ed Golding, principal deputy assistant secretary for housing at the Department of Housing and Urban Development (HUD).
“By better understanding FHA’s acceptable risk tolerance levels for a variety of credit scores, lenders will have the confidence to lend more broadly and FHA will have more data on how successful those lenders are,” Golding said.
The rule complements the FHA’s so-called compare ratio, which is used to identify lenders with excessive default and claim rates compared with their peers.
High rates can lead to termination of a lender by the FHA.
The change is in response to lender concerns about the ratio comparing a borrower’s credit to peers in that market rather than to FHA’s risk tolerance.
The new rule will help FHA lenders see the effects of their lending throughout the credit spectrum in line with the agency’s willingness to insure loans to eligible borrowers with lower credit scores.
Last year, HUD Secretary Julián Castro said comparing lenders’ performance against their peers in a local market “doesn’t paint a complete picture” of how well those portfolios are doing and who they are serving.
In spring 2014, the FHA proposed the development of the new measurement as part of a broader effort to expand access to mortgage credit to underserved borrowers.
The change took effect at the end of July.
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