FHA expected to tighten lending standards as early as this week

January 19, 2010 02:02PM

The Federal Housing Administration’s balancing act is about to reach a tipping point. With default rates up to nearly 24 percent and Congress pressuring the agency to tighten its lending standards, FHA commissioner David Stevens is expected to raise the bar for borrowers as early as this week, but he’ll have to find a way to do so without stunting the already tepid growth in the housing market. The agency’s share of the mortgage market — just 2 percent in 2006 — was up to 25 percent in the third quarter of 2009, according to Inside Mortgage Finance, a trade publication. In the regions hardest-hit by the foreclosure crisis, the FHA backs roughly 50 percent of home loans, according to the Wall Street Journal. “We should not play this large a role,” Stevens said. “It’s not healthy for the mortgage-finance system, it’s not healthy for the economy, and it’s certainly not sustainable for the long term.” Stevens might try to scale back the FHA’s role by raising borrowers’ minimum down payment and implementing a minimum credit score, among other measures. Still, “overcorrecting in either direction would be a terrible thing to do right now,” Stevens said. [WSJ]