FHA Walks A Tightrope
The article states that tightening the credit standards could have a devastating affect on the economy. Well, I think it’s the exact opposite. If they don’t tighten the bar we will be in trouble. This is a marathon, not a sprint so let’s start using our heads. You are giving loans to people who have high debt to income ratios and no money leftover after closing.
FHA’s commissioner left something out of this statement. “David Stevens bought his first home almost 25 years ago, paying just 3% down with a loan backed by the Federal Housing Administration. “I had no money in the bank,” he says. “If it weren’t for the FHA, I wouldn’t have gotten that home.”
What did he leave out? Things are different now. We have automated underwriting systems that tell you whether to give someone a loan or not. Back then you had a human being who had to follow debt to income ratio standards that are not as loose as they are today. You had lay away 25 years ago. You didn’t leverage anything and everything.