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FHA Mortgage Standards Remain Liberal As Private Sector Tightens Up

by Peter G. Miller
November 6th, 2007

The Federal Reserve has just released a new report which confirms what common sense and anecdotal stories have been saying for the past six months: Lenders are tightening loan standards, including loan standards for borrowers with great credit.

According to the Fed’s October 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices, the study found that “significant numbers of domestic respondents reported that they had tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the past three months; the remaining respondents indicated that their lending standards had remained basically unchanged. About 40 percent of respondents indicated that they had tightened their lending standards on prime mortgages, compared with only about 15 percent that reported having done so in the July survey.

“Of the forty banks that originated nontraditional residential loans, 60 percent — up from around 40 percent in the July survey — reported a tightening of their lending standards on such loans over the past three months. Finally, five of the nine banks that originated subprime mortgage loans noted that they had tightened their lending standards on such loans — a proportion about as large as in the July survey.”

In other words, we do not have merely a subprime meltdown — if we did then standards for prime borrowers would have remained largely the same.

Meanwhile, the FHA program has plainly been liberalized. How else can you possibly interpret the FHASecure program, a loan program which is okay with ARM borrowers who have recently missed multiple monthly payments?

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This entry was posted on Tuesday, November 6th, 2007 at 7:26 am and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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