FHA to the Mega-Lenders: Loosen Your Quals for Minorities

The Federal Housing Administration commissioner wants the nation's largest originators to loosen their underwriting standards, allowing more minorities to qualify for government-backed single-family loans. Many top ranked lenders voluntarily imposed a minimum 620 credit score in 2008 as subprime borrowers rushed to refinance into FHA loans. Commissioner David Stevens told minority real estate professionals that the lenders' action has improved the performance of FHA loans and reduced defaults. However, the commissioner is now urging lenders to consider borrowers with lower FICO scores. "The one thing I will tell you, the difference in approval rates for African-Americans and Latino borrowers between 580 and 620 is significant," Mr. Stevens said. The commissioner noted that FHA is taking several steps to reduce default risk. But the agency does not want to raise the FHA 3.5% downpayment requirement to 5%, despite congressional pressure. "If we had increased the downpayment to 5% we would severely impact the ability of a good family" to buy a home, he said. The FHA commissioner made his comments at a recent conference on minority home ownership.