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More Homeowners Paying Their Mortgages on Time

Borrowers who have conventional mortgages are the most likely to pay on time, while borrowers with loans backed by the Federal Housing Administration tend to pay late nearly three times more often. (Still, 91 percent of FHA borrowers pay on time.) FHA borrowers tend to have lower credit scores, higher debt-to-income ratios, and lower down payments. But the FHA delinquency rate of 8.65 percent is still a big improvement over a decade ago, when it was about 14 percent. Why are more Americans paying their mortgages on time? For one, more homeowners now have greater equity in their homes. Also, stricter federal underwriting rules since 2010 have limited who can get a mortgage. Fannie Mae and Freddie Mac require borrowers to have an average FICO credit score near 750, which is much higher than they required before the financial crisis. However, “if the lending industry begins to relax underwriting standards in any significant way to dig deeper into the pool of riskier credit applicants to plump up their volume of home-purchase mortgages, it’s inevitable that delinquencies will rise,” writes Ken Harney, a syndicated real estate columnist for The Washington Post. The FHA also has posted a decrease in average credit scores and is now approving debt-to-income ratios well above 50 percent.