The Federal Housing Administration (FHA) published revised guidelines for lenders when they manually underwrite mortgage loan applications of borrowers applying for FHA-insured mortgages. This change will 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.
The new manual underwriting requirements announced today are intended to encourage lenders to use a defined set of objective standards and ‘compensating factors’ in order to make responsible, risk-based underwriting decisions. In addition, FHA’s manual underwriting guidance addresses loan characteristics such as high debt-to-income ratios and a lack of financial reserves that can result in high rates of default and foreclosure.
“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.”