FHA loans draw comparison to sub-prime

by Justin da Rosa23 Sep 2015
Loans that were originally intended to help first-time buyers more easily access mortgages are being compared to the very loans that contributed to the housing bust.

"FHA requirements are down to a 520 FICO (credit score) and you only have to put 3.5 percent down,” Kevin Watters, CEO of Chase Mortgage Banking told CNBC. “That's subprime lending, and we're not in the subprime lending business."

Though Chase, and other big banks, still provides these loans, smaller originators have picked up much of that slack.

And Watters is calling on more oversight for smaller lenders offering FHA-backed loans.

"So you've got [originators] that aren't as highly regulated, that aren't as well capitalized, and I'm sure many of them do a great job, but there's a lot of new ones out there, and I think it would be prudent to go check on them," Watters said.

JPMorgan Chase is one of the country’s largest mortgage lenders, but – like many big banks – it has shied away from FHA loans.

For those loans, the bank requires stricter lending parameters.

"It's not just the CFPB 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 said. “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."

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