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Banking giant grows more cautious about FHA Loans

NEW YORK – Sept. 23, 2015 – JPMorgan Chase is treading carefully over originating Federal Housing Administration (FHA) loans, a product designed to help first-time homebuyers with lower credit scores and downpayments. Growing regulations and threats over litigation from government regulators have mostly stalled originations of FHA loans.
“FHA requirements are down to a 520 FICO [credit score], and you only have to put 3.5 percent down; that’s subprime lending, and we’re not in the subprime lending business,” Kevin Watters, CEO of Chase Mortgage Banking, told CNBC.
JPMorgan Chase is the second largest mortgage lender in the country. With FHA loans, however, it doesn’t even fall within the top 100. Chase Mortgage has not stopped originating FHA loans entirely. However, its FICO requirements are higher and its loans are more expensive to price since they view them as riskier.
“It’s not just the [Consumer Financial Protection Bureau] or Fannie and Freddie’s rules or Treasury’s rule’s or Ginnie Mae, who’s the servicer for FHA – you’ve got 584 different state and local rules too,” Watters says. “So you’re trying to make sure you abide by all these different rules, and it just gets very complicated, very expensive. So for us in FHA, we’ve priced FHA for the risk we see in FHA, and so we’ve got a higher price than other people, so customers are going to other places.”
Wells Fargo, the nation’s largest mortgage lender, also has raised minimum FICO score requirements for FHA borrowers.
Some independent lenders, however, are stepping in to fill the gap as some big banks back away from FHA lending.
Lawrence Yun, the National Association of Realtors®’ chief economist, says the move by big banks to cut back on FHA lending and move away from low-downpayment options is hindering the housing market.
“I believe that it will have a measurable impact in holding back some of the first-time buyers,” Yun told CNBC. “Therefore, I think from a government policy point of view, they need to look at, very broadly, any mistake the lender has (made).”
Source: “Chase Mortgage CEO Red Flags FHA Loans,” CNBC (Sept. 21, 2015)
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Source: Florida Realtors Feed

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