Home Builders Are Upset with FHA's 'Credit Watch' Actions.(Federal Housing Administration's)

The mortgage lending affiliates of homebuilders are starting to get clipped under the Federal Housing Administration's Credit Watch program and they want the agency to change the default standards so that they are not penalized for concentrating on home purchase loans.

In a letter to FHA commissioner John Weicher, the National Association of Home Builders argue that the early default rate (loans 90 days or more past due) on FHA loans is declining because of the heavy volume of refinancings over the past years.

Home purchase loans generally have higher default rates than seasoned refinanced loans. And the default rate on loans to first-time homebuyers is much higher.

As a result, several homebuilders are very close to having their FHA lending privileges suspended under the Credit Watch program.

Earlier this year, the Department of Housing and Urban Development released a new list of Credit Watch actions, which included the suspension of a Charlotte, N.C., branch office of DHI Mortgage Co., which is an affiliate of the nation's largest homebuilder, D.R. Horton Inc., Arlington, Texas. DHI Mortgage, based in ...