FHA Lenders say “No More Subprime Please”

Posted February 19, 2008

FHA is not Subprime

That’s the message lenders are trying to get out. To make this message heard, many lenders are putting their own parameters on the FHA loans they will underwrite, above and beyond normal FHA guidelines and requirements. With this article, we will get into what and why.

new Charlotte FHA mortgage requirements As of this posting, most FHA lenders are now imposing new minimum credit scores for many of their FHA products. FHA itself does not have any minimum credit scores. However, with the death of subprime many loan officers have been trying their best to force their subprime business into an FHA “manual underwrite” loan mortgage.

“Manual underwrite” means that a borrower does not have the minimum criteria for an automated approval, and therefore a decision must be manually underwritten by a person, not an automated computer system. The manual underwrite was implemented to allow borrowers with less than perfect credit, or limited credit references to provide enough alternative reasons to prove that they can handle a mortgage. Traditionally, for every 10 loans submitted in this manner 5-7 loans would actually get approved and be able to close. However, with the recent trend of typical “subprime” borrowers being submitted for manual underwritten FHA decisions, FHA lenders are seeing only 1-2 out of 10 being approved. And with the steep increase in submissions, that has required lenders to hire more underwriters to keep up with demand. Hiring more people to approve less loans means overhead increases… the costs of each loan is increasing.

To combat this rise, many FHA mortgage lenders in Charlotte and the entire country are imposing their own credit requirements. We are seeing 580 as the average score that most lenders seem to be seeking. That makes sense as most potential borrowers with mid to low 500 scores will typically have more frequent collections and recent late payments. With these changes, lenders are really asking for loan officers to better qualify their potential FHA mortgage loan borrowers. With these changes being implemented, the best news is that underwriting turn times should get back to less than 2 weeks!

Not sure where you stand? As a Charlotte FHA mortgage lender, let us help you get approved for an FHA mortgage loan. If you don’t qualify right now, we can help guide you in the right direction. If you do qualify, we can help you find the best FHA mortgage loan in Charlotte.