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Th e M Rep o RT | 23 Feature foreclosure crisis from being far worse and is already supporting a strong economic recovery." FHA's Mortgage Offerings S ince it was established in 1934, the Federal Housing Administration (FHA) has enabled homeownership for more than 34 million low- and moderate-income families. The agency has updated the combination of FICO scores and down payments allowable for new borrowers, increasing the pool of eligible consumers who may qualify for a government- insured loan under the new, lower FHA mortgage limits. New borrowers must have a minimum credit score of 580 to qualify for FHA's 3.5 percent down payment program. New borrowers with less than a 580 credit score are required to put down at least 10 percent. FHA's formerly proposed credit score thresholds would have lumped borrowers with nontraditional or insufficient credit with all borrowers who possessed a credit score up to 619. The agency described this method as "overly broad." The use of the 580 threshold is consistent with HUD's current guidance for manually underwritten loans. Three lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit history, FHA will allow substitute forms. In analyzing a borrower's credit, the overall pattern of credit behavior is reviewed rather than isolated cases of slow payments. Additionally, FHA believes that by providing more flexible front-end and back-end ratios, it can better define compensating factors. The agency reserves the right to establish additional compensating factors in response to changes in the housing market landscape or the population of borrowers served. High-Cost Mortgage Loans H igh-cost mortgages are defined by the CFPB as loans with high points and other fees, a high annual percentage rate (APR), or certain prepayment penalties. (Points are a type of fee paid at closing by the borrower to the mortgage lender. Each point equals 1 percent of the loan amount.) The bureau does mandate that high-cost mortgages cannot contain certain loan features that are considered abusive, such as prepayment penalties. These loans are typically of- fered to consumers with rela- tively low credit scores, and as such, the CFPB says lenders tend to view these applicants as riskier borrowers. The bureau's high-cost mortgage rule requires the lender to disclose cost information to consumers before they agree to this type of loan. A borrower must also participate in home- ownership counseling before receiving a high-cost mortgage. Homeownership Counseling I n addition to high-cost mortgage recipients, the CFPB requires homeownership counsel- ing for all first-time homebuyers who are considering a loan that allows for negative amortization. In fact, the agency's new mortgage regulations stipulate that every applicant for a mortgage receive a list of homeownership counseling organizations within three days of applying for a mortgage loan. "This new disclosure is one of the important consumer protec- tions in the Dodd-Frank Act," ac- cording to Cassandra Duhaney, a senior policy analyst at the FDIC, and provides borrowers with "an opportunity to learn about the homebuying process from an informed, objective source." Untapped Market Share L enders must marry sensible credit standards with the needs of creditworthy homebuyers who on the surface may not fit the mold of a prime borrower. The turbulence and instability that accompanied the Great Recession severely diminished household incomes, eroded families' savings, and took a toll on credit scores. At the same time, lenders are dealing with rising interest rates, stagnant income growth, and weak household formation. First-time homebuyers ac- counted for 27 percent of national home sales at the end of last year, according to the National Association of Realtors. That's the lowest market share reading for first-time buyers since the trade group began tracking them in 2008 and far below the 40 percent typically claimed by first-timers. Data from FICO indicates about 4 percent of new mortgage originations between August and October of 2012 involved borrow- ers whose credit scores fell be- low 620. In 2006, an estimated 18 percent of new mortgages went to these higher-risk homebuyers. According to a research paper released by the Urban Institute's Housing Finance Policy Center in March, "As measured by average purchase loan credit scores, which have risen from 680 to 734 over the past 13 years, access to credit has tightened and will likely re- main tight without intervention." The Institute's researchers analyzed the link between declin- ing credit access and the drop in purchase mortgages, and by their calculations, with 2001 credit standards in effect, an additional 1.2 million loans would have been originated annually in recent years.