Time to Clamp Down on Mortgage Lending Standards?

The Federal Housing Authority (FHA) certainly thinks so. On March 14^th it issued an updated guidance in response to increasing “risk trends” in its single family mortgage portfolio. Under the new approach announced by the FHA, it is flagging more loans for manual underwriting and imposing tougher minimum loan criteria. According to the WSJ, roughly 40,000-50,000 loans a year will be impacted by the new standards.

While the announcement is likely to be criticized by some housing advocates, concerns have been raised for years about the solvency of the FHA. In the letter announcing the move, FHA Commissioner Montgomery argued that the FHA “must seek the right balance between managing risk and fulfilling its mission of supporting sustainable homeownership.” In contrast, according to the FHA in January, 28% of its mortgages had a debt to income ratio greater than 50%.

Are You Ready For The Day After Tomorrow?

I really do have to come up with a different movie reference when I’m writing about natural disasters but I really can’t get that dumb movie, The Day After Tomorrow, out of my head.

In any event, in response to flooding in the mid-west, regulators, including the NCUA, issued the obligatory statement imploring financial institutions to be flexible when dealing with consumers in the affected areas. The statement includes a link to a 2017 guidance to examiners which I would suggest including in your materials preparing for your credit union’s own natural disaster. I’m no meteorologist but I would work on the assumption that the question is no longer if but when Mother Nature will wallop your operations.

Anyway, the guidance is an interesting read. For example, it stipulates that when evaluating an institution’s natural disaster preparedness, examiners should access a financial institutions “effectiveness in responding to changes in the institution’s, markets as a result of the disaster. And of course, they should expect management to conduct annual risk assessments and update their disaster preparation plans where appropriate.

Enjoy the spring weather. See you tomorrow.