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Lender: FHA Minimum FICO now 620

A local lender has informed me that the the minimum FICO score for an FHA mortgage is now 620. I remember vividly getting people approved in the 90's with scores barely above 500. It didn't happen routinely, but 580 did.

I find this ironic: rates are fantastic and prices are down, but if someone gets caught in the undertow of the recession they can't take advantage. It's like cheap real estate on the moon; all you need to do is figure out how to get there and it's yours. These people pay taxes to bail out the lenders to the tune of almost a trillion dollars, and what do the lenders do in return? Shut them out. It is just another sign that, stimulus program or not, the lenders don't want to extend credit.

The FHA program was not broken and didn't need repair. I am not a "storm the Bastille" kind of guy, but it is a disgrace if lawmakers allow this to stand. I support the banks eliminating bad loans, but I don't support them only making loans to the elite. FHA is for the little guy. At least, it was.

J. Philip Faranda, Broker-owner, J. Philip Real Estate, LLC. 2010 Vice President, Westchester Putnam MLS. Read my short sale bog here. J. Philip Serves Briarcliff Manor, Ossining, Croton, the River Towns, Westchester County, and the bedroom counties of New York City.

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Posted by J Philip Faranda on 02/21/2009 08:31 PM

Comments (7)

FHA Changes in the Mortgage / Finance Channel

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Originally posted at: J. Philip's Briarcliff, Ossining & Westchester Real Estate Blog: Lender: FHA Minimum FICO now 620

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7 Comments on Lender: FHA Minimum FICO now 620

FEB

You need to read Jeff Belongers Recent blog on this topic. He wrote a good post the other day on this very topic.

Thanks for the update and I'm glad to see that they are using some better judgment with this...

FEB

thanks Kate I went and read Jeff's post, it is excellent thanks for pointing it out. J. Philip would it not be true that one of the reasons we have had problems is giving mortgages to individuals that are not qualified or who may/maynot repay? Is it not true that the FICA score is an indication of an individuals ability or past vis a vis their repayment? Aren't stronger requirements necessary and finally it is not just the elite who have higher scores but hard working individuals who have repaid their previous debt and are being finanaically responsible.

Miriam- Certainly irresponsible loans were the reason for the mess. FHA was not the problem, however. It is a 70+ year old program that has enabled generations of first-time homebuyers since FDR's day. In all the news of financial calamity in the past 24 months, FHA loans were seldom a player in the failure of banks or the worthless securities.

Where subprime loans had lax underwriting, questionable appraisals, adjustable rates and low documentation requirements, FHA has stringent underwriting, strict appraisals, fixed rates and high doc requirements.

We need money to circulate, and we've all doled out hundreds of billions for that to happen. The banks have let the pendulum swing far too much the other way after making all the bad loans.

Personally I think the FICO score is overrated as a means to determine whether to make a loan or not. I'd rather see the lenders go over the entire financial history of an applicant. We all know the FICO score can be lowered by any number of given factors, many that cannot be controlled by the borrower. I just checked my credit history and was kinda shocked at a few negatives that appeared, none which were the result of late payments or defaults or any of the major factors that impact our credit rating. One of them was "moving" too often although I've been in the same house for 5 years. My husband's past job moves, three in three years, have flagged my score. Thankfully credit card companies are no longer offering new credit cards to people so that lengthy mess of credit company hits no longer appears.

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NOV

I completely agree FHA's goal is to provide the dream of homeownership to everyone, not just the elite. ("the little guy")

But I'm also sorry to say, FHA is SUBPRIME...you said "...FHA loans were seldom a player..." They are now... take a closer look. The FHA Fund needs it first CASH infusion in its 70+ year history. And remember FHA doesn't own the loan they just insure against loses... The FHA delinquency rates per capita are at an all time high. I understand there are reasons for delinquencies to be up...economy is not real strong and FHA originations are also at an all time high. But we are looking at percentages here, not the number of delinquencies.

In my opinion, the banks imposing the score minimum for FHA are the banks that had the lax FHA standards in the first place. After all the only reason for them to impose a score minimum is because of poor performance of past loans they under wrote, they are only responsible for their own pools and performance.

Here is a link to a post I wrote yesterday on the same topic - maybe it will help.

http://www.nuhomesource.com/blog/did-fha-raise-the-minimum-credit-score-to-620-640-or-even-660.html

ROB SPRING, MBA

Southwest Funding

rspring@southwestfunding.com