FHA Announces Changes in Underwriting Requirements to Address Lower FICO Scores and Higher DTI Ratios

On March 14, 2019, FHA announced in FHA INFO #19-07 that it is returning to manual underwriting reviews of higher-risk loans it insures because of a continued increase in loans with lower credit scores, higher debt-to-income ratios, or both.

Effective for case numbers assigned on or after March 18, 2019, FHA is updating its Technology Open to Approved Lenders Mortgage Scorecard (TOTAL) to reinstate manual underwriting requirements for certain mortgages with credit scores below 620 and DTI ratios above 43%.

According to FHA, it is seeking the right balance between managing risk and fulfilling its mission of supporting homeownership. This includes assessing the causes of the increase in higher-risk credit characteristics in its portfolio and making necessary changes to recalibrate and adjust its policies to manage credit risk.

When the TOTAL Mortgage Scorecard is updated, lenders submitting mortgages with case numbers assigned on or after March 18, 2019, may receive feedback results for certain mortgages indicating they must be manually underwritten. The lender’s final underwriting review decision must be documented according to existing FHA requirements. FHA will carefully monitor the impact of this change and is preparing to implement additional changes to better manage credit risk and fulfill its mission.