Effective March 18, 2019, the Federal Housing Administration (FHA) announced that it began taking initial steps to better mitigate the increased risks in recent single-family loans. This announcement comes as a result of the decrease in average borrower credit scores and the excessive risk that comes into play when multiple risk factors are layered into one loan.
Such layers of risk may include:
- Lower credit scores, with 28% of all borrowers having scores under 640 and 13% of all Borrowers now having scores under 620.
- An increase of more than 60% for cash-out refinances allowing the stripping of equity gained through recent property appreciation
- An increase in high debt-to-income (DTI) ratios, where almost 25% of all FHA insured loans exceed a DTI of 50% of the Borrower’s gross income – the highest percentage since 2000!
FHA’s mission continues to be supporting sustainable home ownership, but one must question if that’s possible given the above statistics.