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Easing Mortgage Standards Are Resulting in More Late Payments

Mortgage delinquencies for first-time buyers have climbed to a four-year high as tight credit standards imposed after the U.S. housing crash start to loosen.

The share of borrowers who are late on their Federal Housing Administration loans, which primarily go to first-time homebuyers, rose to 10.4 percent in the fourth quarter from 9 percent a year earlier, according to data from the Mortgage Bankers Association. While hurricanes in Florida and Texas near the end of last year played a part, delinquencies rose in most states, according to Marina Walsh, the group’s vice president of industry analysis.

Mortgage Bills Overdue

FHA delinquencies rise as lenders ease standards for first-time buyers

Source: Mortgage Bankers Association

Delinquencies are still historically low, yet the jump is surprising given that employment is strong and home prices are steadily increasing. FHA mortgages originated in the past few years are going delinquent sooner than the older loans that had stricter credit standards, according to the MBA. With mortgage rates rising, it will get more difficult for borrowers who fall behind to refinance their way out of trouble. 

More than 10 percent of FHA borrowers this year have credit scores below 620, compared with 2.62 percent in 2014. And 51 percent of FHA buyers had debt-to-income ratios of more than 43 percent -- up 8 percentage points from 2014, according to MBA data.

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