What’s Going on With FHA?

Over the last couple of weeks, a lot has changed in the mortgage and real estate industry. During times of uncertainty and change, it is fairly common for inaccurate information to spread.

As is pertains to FHA loans, rumors have been circulating like:

• FHA has stopped lending
• FHA has changed their guidelines
• FHA has raised interest rates

None of this is true. In fact, in their most recent announcement on March 27th, the FHA announced that they have adjusted their guidelines, in a lot of ways to help the situation. They are now allowing for exterior appraisals to go to desktop and have made adjustments that allow for less strict income verification. Additionally, they have not changed their FICO score or DTI requirements. (1)

The fact is that the economy has changed due to the coronavirus; there has been a massive loss of jobs and income has been reduced for many Americans. Unfortunately, these factors will lead to default for some homeowners, almost immediately.

Because of these economical changes, all lenders and banks are taking the time to reevaluate. They are evaluating risk and in some cases changing business practices. Many entities are making business decisions for the sake of their stability and viability going forward so they can stay in business, continue to lend and keep their staff employed. These are completely normal practices in the mortgage business. In fact, the mortgage industry reevaluates and makes changes to guidelines every year – which is a good thing. It’s important that we have smart people, making decisions and evaluating risk.

Why is FHA impacted?

FHA’s expansive credit box carries more risk for lenders because they are more forgiving on credit scores, reserves and debt-to-income (DTI) allowances. When the economy changes – and the economy is changing – these loans have a higher default rates than your standard conventional conforming loan.

Some lenders are taking extreme measures, some small cautions and some are making no changes at all. Some lenders have decided to lower Debt-to-Income requirements (DTI), some have decided to raise FICO requirements, and some have decided implement reserve requirements.

As Professionals – What Can We Do?

For agents, it’s most important to be informed. Know that FHA didn’t disappear and if your lender is telling you they did, they are wrong. Although it did for some lenders, there are plenty of lenders out there that are still doing FHA – and it’s okay to add more than one lender to your referral network. Now is the time to be picky - work with lenders that make you and your team stronger, that give good advice and know their guidelines. Work with a lender that can be there to educate your clients, as they should get serious about advanced planning.

For lenders, now is the time to be a professional and be an advisor to our clients. Now is the time for us to do better. It’s very important to know your guidelines, and look for better loan options out there; State bond programs, conventional loans, etc. FHA is not the only option for some clients. From educating clients on why they may not qualify to helping clients understand budgets, now more than ever before, is the time we need to evaluate, analyze, prepare, educate and explain.

For any potential first-time homebuyers, understand that buying a house is a huge and exciting thing, but it is also something that you can’t rush into. It’s important that you find a reputable, experienced loan officer to guide you through the process, understand your financial position and start preparing ahead of time. This will give you time to set a budget, sort out down- payment, improve your credit and understand your options.

As always, contact me to see how I can help.

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1 - https://www.hud.gov/sites/dfiles/OCHCO/documents/20-05hsgml.pdf

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