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Jim Bonner
Senior Partner
jim.bonner@brockandscott.com
910-392-4988 x4410
FHA UPDATES UNDERWRITING
GUIDELINES FOR EVALUATING
BORROWER RISK
Carol Galante,
FHA Commissioner
The Federal Housing Administration (FHA)
published new guidelines for lenders to use when
manually underwriting loan applications for
borrowers applying for FHA-insured mortgages.
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According to FHA, the new guidelines
are intended to "improve a lender's ability
to objectively consider a borrower's risk and
reduce additional credit requirements or
'overlays' that exceed FHA's own lending
standards," restoring security to the agency's
depleted Mutual Mortgage Insurance Fund
without forcing lenders to over-tighten their
standards.
"We want to provide revised guidance
for our lenders so that they are confident
in offering affordable mortgage loans to
responsible borrowers under a reasonable
set of guiding principles," said FHA
Commissioner Carol Galante. "We hope to
bring more certainty to the market by helping
lenders apply a set of consistent underwriting
standards."
Chief among the changes is a set of
"compensating factors" for lenders to use when
considering borrowers whose debt-to-income
percentages exceed established ratios (31 percent
Kevin Frazier
Marketing & Client Relations
kevin.frazier@brockandscott.com
336-354-1200 x3709
for housing costs and 43 percent for total
discretionary debt).
For borrowers with credit scores above
580 (reduced from 620 previously), FHA
will allow maximum housing/debt ratios of
37 and 47 percent as long as the borrower
has "verified and documented liquid cash
reserves" equal to at least three months of
mortgage payments or if their new monthly
payment is less than $100 (or 5 percent) more
than their previous payment.
Maximum ratios of 40 and 50 percent may
be allowed if there are at least two compensating
factors. Borrowers with credit scores below 580
and borrowers without credit scores may not
exceed the original ratios.
HUD also extended the requirements to
apply to all credit-qualifying FHA refinances.
Acknowledging that more stringent
requirements may delay some homebuyers' plans,
FHA asserts many of the estimated 16,00019,000 borrowers affected by the updates will be
able to adjust their financial situations "within a
year or two."
Though an effective date for the changes
hasn't yet been published, HUD said it won't
come before March 11, 2014.
