The government is trying to coax banks back to making mortgage loans to risky borrowers, after a string of expensive disputes over a federal loan program led some banks to conclude it wasn’t worth the headaches, the Wall Street Journal reported today. At issue are loans backed by the Federal Housing Administration, a government agency that insures lenders against default when they extend mortgages to qualified buyers with credit scores of as low as 580 and down payments as low as 3.5 percent. FHA lending has grown quickly this year, but suits brought by the Justice Department claiming mistakes in documentation by banks underwriting the loans have piled up as well. The result has been billions of dollars in penalties against banks including Bank of America Corp. and JPMorgan Chase & Co. Fearing more lawsuits, some lenders have reacted by making fewer loans through the FHA program, most often by putting in place stronger credit requirements such as higher credit scores than the FHA threshold.
