Two of the Nations biggest lenders, Wells Fargo and Quicken Loans, have loosened their requirements and announced that they would begin lending to applicants with 580 FICO scores and down payments of 3.5%.

photo credit: MoneyBlogNewz

Because of the recession, one third of Americans have FICO scores lower than 620, the lowest benchmark most lenders have required lately.

Ken Harney, columnist for Inman News stated that "The lending industry's rationale for imposing a higher bar than FHA's own: They need an extra cushion of protection against potential defaults by borrowers with subpar credit scores. Many of those defaults, they said, could prompt indemnification demands by the Federal Housing Administration -- essentially punitive repayments for insured loans that go belly up."

The FHA bar for loans is 580 and they encourage relaxing the lenders overlay requirements.  "FHA commissioner David Stevens says he understands the lenders' concerns, but that many applicants with 580 scores have solid incomes and generally good credit histories. Their current scores are depressed, he argues, because "they went through the recession and suffered some damage, such as short-term loss of income," which caused them to be late on some payments." states Inman News.

Realtors, builders and consumer groups have denounced the big lenders for their overlay requirement practices, saying that it was discriminatory to set tougher standards than FHA requires and that it violates federal fair lending and equal opportunity statutes

Quicken has stated that they will only consider FICO scores down to 580 but Wells Fargo will consider scores below 580, but with stringent guidelines to weed out the unqualified buyer. 

"Borrowers with scores between 500 and 579 will need a 10 percent down payment from their personal resources. They will not be able to use gift money from relatives, friends or a charitable down payment assistance program to meet the 10 percent upfront equity test.

Home buyers with scores of 580-599 will need 5 percent down payments, and will be prohibited from supplementing their own cash with gifts. Borrowers with FICOs above 600 will qualify for 3.5 percent down payment FHA deals, but will be allowed to use gift money.

Contributions from home sellers to defray buyers' closing or loan origination costs will be limited to 3 percent. Debt-to-income ratios will be tight: 31 percent for monthly housing-related expenses, and 43 percent for total household debt service."

 FHA's Stevens told Harney "that the Wells approach is well thought out and could serve as a model" for other large lenders to consider in the coming weeks."

Wells Fargo loan program is only available through their retail lending channel and not through third party brokers or correspondent lenders.  

Harney says that "If the mortgage industry adopts the Wells and Quicken guidelines in some form, tens of thousands of consumers -- along with the real estate professionals assisting them -- could be beneficiaries in the weeks immediately ahead.

But keep this in mind: You may need to reach out to loan officers to inquire about any policy changes. So far, nobody's been on the rooftops shouting about the good news."

Read the full story at Inman News.

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Posted in MBI Advantages, Marketing, MBI Headlines, Buyer Resources, Real Estate Market Conditions

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