Categorized | Finance and Mortgage

Housing Loans Tightened in the United States by the Fed

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In an effort to reduce the delinquency rate on FHA loans, the Federal Housing Administration has decided to strengthen its standards for approving lenders that insure mortgages.

With the delinquency rate at eighteen percent, analysts believe that the move by the Federal Housing Administration was essential for the overall health of the housing market. It is also believed that tightened standards could actually improve the quality of government housing loans.

Nearly one in six FHA loans under the current standards fall into delinquency. In addition to reducing the number of delinquencies, the changes to tightened housing loan standards could work to strengthen the Mutual Mortgage Insurance Fund. There have been fears that the Mutual Mortgage Insurance Fund may soon require a bailout. With the changes in housing loan standards, however, the need for a bailout may be averted.

The new standards include a variety of important rule changes with respect to how FHA-insured mortgages are handled. The approval process will be more stringent. Lenders will have to meet tougher loan performance standards. The overall delinquency rate of a lender must not be in excess of one hundred and fifty percent of that of the state in order to qualify.

FHA-approved lenders will be monitored far more closely than in the past. The monitoring will play an important role to make sure the new standards for eligibility are followed. Lastly, lenders that knew or should have known of any fraud or misrepresentation with respect to a loan must repay the FHA in the case that such a loan defaults.

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About James Pattric

James writes for the Residential category (along with Josh Johnson) and also heads up the Resources category.

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