Some lenders are taking reforms in the Federal Housing Administration credit policies too far, shutting the door on otherwise good candidates for home ownership, FHA Commissioner David Stevens said in Atlanta at the Mortgage Bankers Association's annual convention.
Over the last few months, the FHA has implemented sweeping underwriting changes in an attempt to protect the agency's bottom line while also providing wide access to its loan programs. But Stevens said that some lenders have gone overboard by tightening even further and limiting the market segments they serve.
"Even with the current extraordinarily high levels of affordability, access to credit continues to be a major barrier for potential home buyers," the FHA Secretary said.
He said lenders need to do a better job of distinguishing between "the habitual late payer" and someone who has experienced a life-changing event. "Every person in this room likely has a relative or friend who lost their job – and probably taken a big hit on their FICO as a result, despite a lifetime of good credit," he said.
Stevens warned that if lenders become too restrictive, they're liable to shut off the fragile housing recovery, especially in markets that can take another hit the least. "You won't help communities recover if you limit lending to just the top tier borrowers," he said.
