If you’ve been following the news, you might have heard that the Federal Housing Administration is putting up hurdles for higher-risk borrowers to get their home loan application approved. On March 14, the FHA said applicants with a credit score of 620 or lower, or with a debt-to-income ratio of 43 percent, would get their loan application reviewed manually rather than through automated underwriting. This isn’t a new policy—it’s a return to a policy the agency had but moved away from in 2016.
As a result of this return to its previous practice, high-risk borrowers will still have their application reviewed, but it will get extra scrutiny and take longer.
In a sense, the agency is going back to basics. There’s been an uptick in higher risk loans getting into its insurance fund, and it wants to take action before problems appear. “Continuing to endorse mortgages with higher risk characteristics, without changes, negatively affects the Mutual Mortgage Insurance Fund,” the agency says in its memo announcing the policy.