Mortgage

FHA continues push for expanded credit access

Supplemental Performance Metric will give insight about lenders

Furthering a program that was initially announced in May of last year, the Federal Housing Administration announced the implementation of one of the key facets of its “Blueprint for Access,” which is designed to expand credit access to underserved borrowers.

According to an announcement from the Department of Housing and Urban Development, the FHA is implementing a new “Supplemental Performance Metric,” which the FHA says will work hand-in-hand with the agency’s existing “Compare Ratio” to offer “more nuanced insight into a lender’s specific performance.”

The FHA said that having a more detailed view of the business will encourage lenders to serve eligible underserved borrowers.

“This is one more tool to help FHA, lenders, and the public, know exactly who we’re serving,” said Ed Golding, principal deputy assistant secretary for housing. “By better understanding FHA’s acceptable risk tolerance levels for a variety of credit scores, lenders will have the confidence to lend more broadly and FHA will have more data on how successful those lenders are.”

In the announcement, the FHA said the new supplemental performance metric will help FHA lenders see the impact of their business at all ends of the credit spectrum, which will allow lenders to capitalize on the FHA’s willingness to insure loans to eligible borrowers with lower credit scores.

According to the FHA, the new metric will be complementary and is available in FHA’s Neighborhood Watch Early Warning System, which is now functioning again after being down for several weeks. 

“The new metric is designed to help mitigate adverse selection of borrowers with certain credit profiles and encourage the extension of homeownership opportunities to underserved segments of the market,” the FHA said in an announcement.

When the FHA announced its “Blueprint for Access” last year, it proposed the Supplemental Performance Metric as a complement to the Compare Ratio, which the FHA currently calculates for all lenders.

The Compare Ratio is geographically based, comparing the rate of early defaults and claims for single-family loans in a geographic area to other mortgagees in the same area.

According to the FHA, the Supplemental Performance Metric responds to lender concerns about the Compare Ratio being a comparison to one’s peers rather than to FHA’s risk tolerance.

By measuring default rates and claims in three distinct credit bands, the metric compliments the Compare Ratio, providing a more granular, nuanced look at lender performance, with the added benefit of better understanding of who lenders are serving, the FHA said.

The Community Home Lenders Association heralded the FHA’s announcement, saying the move should help lenders and borrowers alike.

“The Community Home Lenders Association lauds the FHA for moving forward with its Supplemental Performance Metric,” said Scott Olson, CHLA’s executive director.  “We believe this will improve access to credit, by removing disincentives for lenders to originate mortgage loans to qualified FHA borrowers with lower FICO scores.”

For an in-depth look at other measures lenders are taking to reach underserved borrowers, click here to read a feature on the subject from the August issue of HousingWire Magazine.

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