FHA clamping down on risky mortgages

    The federal agency that insures mortgages for first-time home buyers is tightening its standards, amid concerns it is allowing too many risky loans to be extended, The Wall Street Journal reports.

    The Federal Housing Administration told lenders this month it would begin flagging more loans as high risk. Those mortgages, many of which are extended to borrowers with low credit scores and high loan payments relative to their incomes, will now go through a more rigorous manual underwriting process, the FHA says.

    The FHA’s decision to tighten underwriting standards could mean fewer first-time home buyers are able to get mortgages. Roughly 40,000 to 50,000 loans a year likely would be affected, or about 4% to 5% of the FHA-insured mortgages originated annually in recent years, according to Keith Becker, the agency’s chief risk officer.

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