For Better or Worse: It’s Getting Easier Again to Get an FHA Loan?

Is this a case of a return to normality, or another case of “will they never learn?”  Ginnie Mae, a government agency that issues bonds backed by FHA loans, reported that the average credit score on FHA-backed loans fell to 680 late in 2013, down from 701 in January 2013. Additionally, the average debt-to-income ratio on these loans rose to 40.3 percent from 38 percent, another indicator that credit for mortgage borrowers may be easing. Wells Fargo, the leading home lender, has reportedly been qualifying FHA borrowers with credit scores as low as 600 from their previous low threshold of 640. The L.A. Times reports “The FHA theoretically allows credit scores as low as 580, but lenders, buffeted by defaulted loans and demands that they buy back troubled mortgages that they sold generally have set standards higher since the mortgage meltdown.

Wells Fargo spokesman Tom Goyda defends the banks’ lower standards, and says the practices of the mid 2000s are not returning. “All loan application are fully underwritten and documented, and borrowers must demonstrate ability to repay,” said Goyda. Goyda said the bank consulted with the Department of Housing and Urban Development (HUD) and with advocacy groups before deciding on the new standards.

The real question is whether lower credit standards is good or bad for the housing industry. On one hand, easier credit opens the housing market to more participants, and more first-time buyers, and also allows current homeowners the opportunity to move if they choose to. However, on the other hand, if standards get too lax, we could see a return to the days when just about anybody could get a loan, for just about any amount, on just about any property. That cannot be considered good for the housing market or the country in general.

What do you think? Are easing credit requirements in the mortgage market a good or bad thing in today’s real estate market?

*GOD Speed*


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