The Federal Housing Administration (FHA) wants to reach out to borrowers with credit scores of 640-680 because lenders have pulled back from that borrower class over the last ten years, according to Frank Vetrano, of FHA’s risk management and regulatory affairs division, noting the housing downturn took many of these people out of the home buying market. The agency is also cautioning lenders to make fewer mistakes when writing mortgages. Lower credit scores and the possibility of default for which the lender may be penalized is already pushing some lenders away. The FHA expects 75 percent of its loans will be made to borrowers with FICO scores of 680 or below, according to nationalmortgagenews.com.

The FHA says of 6,645 loans it reviewed in Q1 2014 only 16 percent had no mistakes, while 48 percent were unacceptable and 36 percent were deficient but potentially correctable. Banks can be liable for treble damages under the False Claims Act if they falsely certify that a mortgage meets all FHA requirements. Since 2013 the FHA has deliberately moved away from those with credit scores of above 680, ceding market share to Fannie Mae and Freddie Mac. As MHProNews posted Sept. 11, for the first nine months of the government’s fiscal year ending June 30, FHA originations fell 47 percent from the same period of 2013, due to rising insurance premiums. ##