We’ve all heard the famous quote “Those who cannot remember the past are condemned to repeat it.” There are countless examples of it being true and I wonder if we are starting to see another one.
This past week National Mortgage News reported that many leaders had lowered their minimum credit score below 600. Read the article here.
When I read this I was in a bit of shock. Are folks greedy or just stupid?
Now we all probably know that our friends at Fannie and Freddie won’t buy a loan if the credit score is below 620. They’ve got mountains of data from the pre-crash about how expanded approval loans performed as they pushed the envelope on home ownership. And the data isn’t all that good.
But FHA and VA loans don’t have the same minimums or market place as conventional mortgages. You can get an FHA insured loans with 3.5% down with a score as low as 580. Borrowers with scores under 580 can still get an FHA loan, but need 10% down.
Despite this, most lenders did not dip to these lower standards and used credit score minimums in the 620 to 640 range. They didn’t want the credit risk or to be “targeted” by HUD for too high of a delinquency rate. They also probably didn’t want to be adversely selected as one of the few lenders doing low score government loans.continue reading »