FHA mortgage loans may be easier to get

A new Federal Housing Administration initiative will make it easier to qualify for a mortgage loan through the FHA. This is good news for borrowers with lower incomes or an imperfect credit history, since FHA loans are often available to people with credit scores as low as 580 and down payments as low as 3.5 percent.

Here’s the background: As part of its crackdown after the housing bust, the federal government adopted rules saying that if Fannie Mae or Freddie Mac bought a loan that went into foreclosure, and it turned out that the lender had made some error in the initial paperwork years ago – even a fairly minor or technical one – Fannie or Freddie could force the lender to take the bad loan back.

The situation was even worse with FHA loans, because the government could seek triple damages against the lender. In one case, the government won $614 million against one bank in a settlement over many FHA mortgages.

As a result, lenders tightened up their rules and added many layers of paperwork, making it harder for lots of people to get a mortgage.

In 2014, though, Fannie and Freddie reached an agreement that defines exactly what sorts of mistakes will cause a lender to have to take back a bad loan years after the fact. This gives lenders more certainty, and has caused many of them to relax their rules.

Now, the FHA has done something similar. It has proposed new documents for certifying loans, which will be more forgiving of minor mistakes. This should make lenders more willing to make loans without draconian paperwork and documentation requirements.