CNN reported yesterday that the Federal Housing Administration (FHA) is tightening lending guidelines for borrowers with lower credit ratings to help “shore up” it’s deteriorating finances. In case you’re not familiar with the FHA, it is a government agency that supports the mortgage and housing markets by insuring home loans against default. It has been heavily involved in propping up the flailing housing market over the past year by insuring “about 30% of home purchases and 20% of refinanced mortgages in 2009″, according to CNN. Is this tightening of guidelines at the FHA a harbinger of things to come? Are we going to be seeing even more tightening in the mortgage markets down the road? I think so. The FHA has been very loose in it’s guidelines – so loose that many have likened the current FHA boom to the subprime boom of a few years ago – and it has begun to adversely impact the agency’s finances. Additionally, the Federal Reserve has played a very key role in backstopping the mortgage and housing markets by purchasing mortgage backed securities to loosen credit and push down mortgage rates. Federal government involvement is the primary reason there has been a housing and mortgage market over the past year. If the artificial stimulus is removed, rates will rise and financing will be more difficult to obtain, resulting in further pressure on an already burdened housing market.
-CH
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Tags: FHA, Mortgage Lending
