The Urban Institute's Housing Finance Policy Center has just published two new blogs.
The first, "FHA’s new performance metric could open the credit box" explains how a recent change to the way FHA evaluates lender performance could open up lending to borrowers with lower credit scores.
The second is "A mortgage program" to beter serve the next generation of borrowers" details how Fannie’s new affordable mortgage program, HomeReady, is designed for cash-poor, tech-savvy millennials and the growing minority population.
Here’s a taste of one:
We’ve been talking for many months about the need to open the credit box so that more borrowers with less-than-pristine credit can obtain mortgages. A continued decline in Federal Housing Administration (FHA) lending to those with less-than-perfect credit has led many, including ourselves, to suspect that the way FHA evaluates lender performance has had at least a partial role in restricting access to mortgages. But FHA’s new “Supplemental Performance Metric” announced recently could open up lending to borrowers with lower credit scores.
FHA has traditionally used the “compare ratio” to assess lender performance
The ratio compares the early stage weighted average seriously delinquent rate (WASDQ) of a lender’s FHA loans to that of all FHA-insured loans. Lenders whose seriously delinquent rate is significantly higher than the FHA average can ultimately lose their license to originate FHA loans. Even if FHA allows a lender to continue, a high compare ratio can cut off warehouse lending—financing critical to many FHA lenders.
Click through to read each.