FHA Issues New DTI Ratios for Lower Credit Scores to Limit Risk

The Federal Housing Administration (FHA) has announced it has changed its requirements for high debt-to-income (DTI) ratio and low credit score loans. The changes, meant to address the rise in certain higher-risk credit characteristics in the mortgages it insures, could make it more difficult for some homebuyers to obtain a loan.

The FHA is updating its Technology Open to Approved Lenders (TOTAL) Mortgage Scorecard to compensate for a change made in August 2016, which removed a 2013 rule that created manual underwriting requirements for mortgages submitted to the scorecard with less than 620 credit scores and greater than 43 percent DTI ratios.

"To be successful long term, FHA must maintain the integrity of its insurance endorsements," the agency said in a  statement issued March 14. "This includes assessing the causes of the increase in higher-risk credit characteristics in the portfolio and making prudent and necessary changes to recalibrate and adjust its policies as warranted to manage credit risk."

The agency says it will monitor the impact of the change and is preparing to implement more changes to better manage risk.