FHA Changes The Lending Rules

Kai Ryssdal: From the always interesting world of the American housing market, this dispatch today. As Alisa mentioned, housing starts fell unexpectedly last month. That is, the number of new residential construction projects went down about 4 percent. Perhaps a sign of unease among contractors and building companies. In that vein the Federal Housing Administration has announced that it is going to toughen up on the requirements for the residential loans that it insures. It could be painful for the housing market in the short term. But better for the rest of us eventually.

LOU BARNES: This will shut off credit access to consumers who theoretically fit the rule book, or might be jammed into the rule book, but who really shouldn’t become homeowners. And those consumers who do get an FHA-backed loan will have to pay more. The FHA is raising the cost of mortgages just as the housing market is trying to get back on its feet. But housing analyst Karen Petrou of Federal Financial Analytics says it’s the only way.

KAREN PETROU: We need the FHA to be a prudent part of a recovering mortgage finance system. There’s no easy way out but prudence should dictate policy now. And the FHA is in a position to dictate. It now insures more than a third of all new home loans.

To listen to the full story click here: