FHA-backed mortgages drop 19%

Lenders put limit on federal insurance

Major lenders and regulators are working hard to find common ground when it comes to giving home loans to lower-income Americans. But despite all the discussion, no agreement has been met, according to an article in Bloomberg.

Federal Housing Administration loans, given to borrowers with weaker credit scores and requiring small down payments, plummeted 19% in the nine months ending June 30 compared with a year earlier. 

However, the article explained that the largest U.S. home lenders are curtailing FHA mortgages because of concerns that they will be penalized for what they consider immaterial underwriting errors when loans default.

“A big issue is the DOJ settlements and their impact on the lending attitudes of the banks, which is clearly the elephant in the room,” said Brian Chappelle, a former FHA official and partner at Potomac Partners LLC, a consulting firm for lenders in Washington. “The government is worried about access to credit. They’re looking at volume numbers and they know it’s a serious problem.”

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