FHA Eases Income Requirements Due to COVID-19
Written By: Joel Palmer, Op-Ed Writer
The Federal Housing Administration (FHA) has directed mortgage underwriters to be more flexible with borrowers who have been negatively affected by COVID-19.
The new policy was announced last week in Mortgage Letter 2022-09. It instructs lenders how to calculate effective income for qualified borrowers who were affected by gaps in employment, which led to reductions or loss of income due to a COVID-19 “related economic event.”
FHA defines a COVID-19 related economic event as a temporary loss of employment, temporary reduction of income, or temporary reduction of hours worked during the Presidentially Declared COVID-19 National Emergency.
The new exception for COVID-19 applies to full-time, part-time, hourly, salaried and self-employed workers. In general, the policy directs underwriters to refer only to an applicant’s current income, instead of taking past income into account. FHA says those who now have stable income will have a greater opportunity to purchase a home using FHA-insured mortgage financing.
“The pandemic affected the livelihoods of tens of millions of workers in this country, particularly workers of color and those at the lower end of the wage scale,” said Federal Housing Commissioner Julia Gordon.
“Limiting these families’ homeownership opportunities because of the unavoidable impacts of an unprecedented global health crisis, when they are otherwise well-qualified for a mortgage, is unnecessary and contrary to this Administration’s goals and FHA’s mission.”
FHA said these measures are expected to mitigate or offset potential risk of default that results in a claim against the Mutual Mortgage Insurance Fund (MMIF).
Lenders may begin using the new policies immediately but must implement the new policies for FHA case numbers assigned on or after September 5, 2022.
The move comes as potential buyers become more pessimistic about the prospects of buying a home.
The most recent Fannie Mae Home Purchase Sentiment Index fell to its second-lowest reading in a decade in June.
Only 20 percent of respondents report that it’s a good time to buy a home. In addition, consumers who believe now is a good time to sell fell from 76 percent to 68 percent this month.
For the first time in nearly seven years, a plurality of respondents said it would be difficult to get a mortgage.
In addition to the combination of higher home prices and mortgage rates, potential buyers also expressed pessimism about the overall economy.
A survey-high 81 percent of respondents believe the economy is on the “wrong track.” Furthermore, the percentage who expressed concern about job losses in the next year increased from 16 percent to 21 percent the highest in 18 months.
“People appear to be growing increasingly frustrated with inflation and the slowing economy,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “This month’s HPSI reading reflects these macroeconomic and personal financial concerns, with housing sentiment additionally diminished by the recent rapid increases in mortgage rates.”
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
